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Window Takaful OperationsTAKAFUL

SGI House18-C/E-1, Gulberg III, Lahore.Phone: 042-35775024-29Email: [email protected]: www.sgicl.com | www.takafulsgi.com

GENERAL INSURANCE COMPANY LTD.SECURITY(Window Takaful Operations)

ANN

UAL REPORT 2019SECURITY GEN

ERAL INSURAN

CE COMPAN

Y LTD.

12019ANNUAL REPORT

TABLE OF CONTENT

CompanyInformation

Highlights 2Branch Network 3Mission Statement 4Quality Policy & Objectives 6Insurer Financial Strength Rating 8

InvestorInformation

Board Of Directors 10CEO Message 11Company Information 12Key Financial Data 14Fire & Allied Perlis Insurance 16Marine Cargo Insurance 17Motor Insurance 18Engineering & Miscellaneous Insurance 19Bonds Insurance 20Crops Insurance 21Home Insurance 22Live Stock Insurance 23

Notice of Annual General Meeting 24Directors’ Report to the Members 31

اراکین ڈائریکٹرزکی رپورٹ کو 38

Disclosure of Categories of Shareholding 39Pattern of Share Holding 40Independent Auditor’s Review Report 41Statement of Compliance 42Statement under section 46(6) 45

CorporateGovernance

Independent Auditor’s Report 48Statement of Financial Position 51Profit and Loss Account 52Statement of OtherComprehensive Income 53Statement of Changes in Equity

54

Cash Flow Statement 55Notes to the Financial Statements 57

FinancialStatements

FinancialStatements

WTO

Shariah Advisor’s Report 134Independent Auditor’s Report 135Statement of Financial Position 138Statement of Comprehensive Income 139Cash Flow Statement 140Statement of Changes in Funds 141Notes to and Forming Part of the Financial Statements 142JamapunjiForm of Proxy

IRAN

BALOCHISTAN

SIND

PUNJAB

JAMMU & KASHMIR

GILGIT

KPK

ARABIAN SEA

Gwadar

ThattaBadin

Tharparkar

KARACHI

HYDERABAD

MIRPUR KHAS

Umar Kot

NawabshahSanghar

Lasbaila

INDIA

Panjgur

Awaran

Naushehro Feroz

LARKANASUKKUR

Khairpur

Ghotki

Jacobabad

NasirabadRahim Yar Khan

KHUZDAR

KALATChagi

Kharan

QUETTA

SIBI

Dera Bugti

MastungBolan

LoralaiZiaratPishin

Qila Saifullah

ZHOB

Rajanpur

LodhranBAHAWALPUR

MuzaffarGarh

DERAGHAZI KHAN

MULTANVihari Bahawalnagar

Pak PattanKhanewal

SahiwalOkara

Toba Tek Singh

Jhang

Bhakkar

Shekhupura

LAHORE

Kasur

Narowal

FAISALABAD

SARGODHA

GUJRANWALA

D.I. KHAN

Tank

Lakki

South Waziristan

KarakBANNU

North Waziristan

KOHAT

PESHAWAR

Leiah

Hafizabad

Khoshab

MandiBahauddin

Gujrat SialkotMianwali

ChakwalJhelum

RAWALPINDI

AFGHANISTAN

HanguKurramAgency

ISLAMABAD D I S P U T E D T E R R I TO RYAttockCity

MARDANSwabi

Noshehra HaripurABBOTTABAD

MUZAFFARABAD

Srinagar

Kargil

LehMingora

BhagRawalakot

Batgram

Mansehra

Dasu

MalakandMohmand

KohistanChitralGILGIT

SIALKOT BRANCH:Office No. 1 & 2, First Floor, Kashmir Centre,Kutchery Road, Sialkot.

LAHORE CITY BRANCH:House No.65/172, 1st Floor, Street No. 3 CMA, Housing Society, Lahore, Cantt.

KARACHI CITY BRANCH:House No. 59-N, Nazar-ul-Islam Road, Block No. 2, P.E.C.H.S Karachi.

KARACHI MAIN BRANCH:1st Floor, Karachi Chamber, Hasrat Mohani Road, Off. I . I . Chundrigar Road, Karachi.

CORPORATE BRANCH:9-B, 3rd Floor, LDA Flats, Lawrance Road, Lahore.

ISLAMABAD BRANCH:Office No. 4, 1st Floor Vip Square, I-8 Markaz, Islamabad.

FAISALABAD BRANCH:2nd Floor, Regency Plaza, New Civil Lines, Faisalabad.

MULTAN BRANCH:1st, Floor, Business City Plaza, Bosan Road, Multan.

HIGHLIGHTSRupees in Million

NETCLAIMS110

NETPREMIUM

696

NET COMMISSION

13

GROSSPREMIUMWRITTEN

3,227INVESTMENT

INCOME1,037

UNDERWRITINGRESULTS

302

PROFIT BEFORE TAX

1354

PROFIT AFTERTAX

959

MANAGEMENTEXPENSES

271

2 SECURITY GENERAL INSURANCE COMPANY LTD

For All OurProgress and SuccessThere’s Still to do.

32019ANNUAL REPORT

IRAN

BALOCHISTAN

SIND

PUNJAB

JAMMU & KASHMIR

GILGIT

KPK

ARABIAN SEA

Gwadar

ThattaBadin

Tharparkar

KARACHI

HYDERABAD

MIRPUR KHAS

Umar Kot

NawabshahSanghar

Lasbaila

INDIA

Panjgur

Awaran

Naushehro Feroz

LARKANASUKKUR

Khairpur

Ghotki

Jacobabad

NasirabadRahim Yar Khan

KHUZDAR

KALATChagi

Kharan

QUETTA

SIBI

Dera Bugti

MastungBolan

LoralaiZiaratPishin

Qila Saifullah

ZHOB

Rajanpur

LodhranBAHAWALPUR

MuzaffarGarh

DERAGHAZI KHAN

MULTANVihari Bahawalnagar

Pak PattanKhanewal

SahiwalOkara

Toba Tek Singh

Jhang

Bhakkar

Shekhupura

LAHORE

Kasur

Narowal

FAISALABAD

SARGODHA

GUJRANWALA

D.I. KHAN

Tank

Lakki

South Waziristan

KarakBANNU

North Waziristan

KOHAT

PESHAWAR

Leiah

Hafizabad

Khoshab

MandiBahauddin

Gujrat SialkotMianwali

ChakwalJhelum

RAWALPINDI

AFGHANISTAN

HanguKurramAgency

ISLAMABAD D I S P U T E D T E R R I TO RYAttockCity

MARDANSwabi

Noshehra HaripurABBOTTABAD

MUZAFFARABAD

Srinagar

Kargil

LehMingora

BhagRawalakot

Batgram

Mansehra

Dasu

MalakandMohmand

KohistanChitralGILGIT

SIALKOT BRANCH:Office No. 1 & 2, First Floor, Kashmir Centre,Kutchery Road, Sialkot.

LAHORE CITY BRANCH:House No.65/172, 1st Floor, Street No. 3 CMA, Housing Society, Lahore, Cantt.

KARACHI CITY BRANCH:House No. 59-N, Nazar-ul-Islam Road, Block No. 2, P.E.C.H.S Karachi.

KARACHI MAIN BRANCH:1st Floor, Karachi Chamber, Hasrat Mohani Road, Off. I . I . Chundrigar Road, Karachi.

CORPORATE BRANCH:9-B, 3rd Floor, LDA Flats, Lawrance Road, Lahore.

ISLAMABAD BRANCH:Office No. 4, 1st Floor Vip Square, I-8 Markaz, Islamabad.

FAISALABAD BRANCH:2nd Floor, Regency Plaza, New Civil Lines, Faisalabad.

MULTAN BRANCH:1st, Floor, Business City Plaza, Bosan Road, Multan.

BRANCH NETWORK


SGI to become a leader in insurance through innovation, competitive advantage, customers’ satisfaction and stakeholders’ confidence.

MISSION STATEMENT

52019ANNUAL REPORT


We aspire to be the lead insurance company and achieve global recognition through quality products, high quality service and superior risk underwriting capability.

QUALITY POLICY & OBJECTIVES

72019ANNUAL REPORT

• By enhanced efficiency through optimum utilization of resources• Through increased premium growth & earnings to enhance the return to shareholders.• Enhance job satisfaction & employee creativity and provide employees with opportunities for personal & career development

To achieve Market

dominance through:

• Increasing market share• Large & more diversified business portfolio• Greater market outreach

To achieve customer

satisfaction through:

• Innovative products• High quality & timely customer service• Prompt payment of claims• Provide adequate protection to clients and pass on to clients greater benefits• through more cost effective insurance with less risk exposure

To achieve superior risk underwriting

capacity:

• Through innovative underwriting techniques & practices• Disciplined risk management & judicious underwriting• Through hiring/retaining highly qualified & expereienced underwriters & adequate• in house training / exposure

To achieve stakeholders’ confidence & continuously

improve performance:


INSURER FINANCIAL STRENGTH RATING

‘AA’JCR-VIS

92019ANNUAL REPORT


“By adopting best practices and measures we are ensuring consistent growth in market share for Security General Insurance Company Limited”

Mian Hassan ManshaChairman

BOARD OF DIRECTORS

Farrukh AleemChief Executive Officer

Aftab Ahmed KhanDirector

Muhammad AzamDirector

Mahmood AkhtarDirector

Khalid Mahmood ChohanCompany Secretary

Inayat Ullah NiaziDirector

Security General Insurance Company Limited – a leading non-life insurance company – has been delivering sustainable profit growth while building a solid business foundation amidst a challenging operating environment. Our strengths are derived from our proven ability to leverage our most valuable assets — our people, our technical experts, our re-insurance arrangements and our unrelenting focus on creating value for our customers.

“You’ll never have a product or price advantage again. They can be too easily duplicated. But a strong customer service culture cannot be copied.”

As a public limited company, we are always responsible for driving our business forward in light of vision conferred by our sponsors and providing them with optimal return on their investment. This will only be accomplished by our continued focus on policy implementation, quality work, reliability, vocational value and customer service.

Success and growth in insurance sector depends on various factors but to mobilize your sales team with objective balance between efforts and rewards is very much important as rewards are those commitments that a principal can consistently carry forward are key elements for the growth, strength and good will of company. We are focused and stick to this policy and offered positive values and consistent remunerations for our sales team and this is the reason we not only earned their trust but also the loyalty that gave us consistent growth as well as strong bottom line. Furthermore, our market penetration not only deems the “controlled” underwriting approach but also affix with the vision to safe guard our re-insurers and treaty underwriters to keep the long-tail relationships with them.

We are thriving towards growth by extending our products range. For the year 2020 we are about to offer new products on board that will not only give us new ways to satisfy our customers but also provide opportunity for our sales team to mark the market. Later, in the first half of year 2018, we started Takaful Window Operations (WTO) that are going smoothly towards growth and we are hopeful to have substantial market share in upcoming years.

Overall, market dynamics have been changed that led further competition and new extensions in existing products. In this context we are always adaptive toward new changes but shall continue to exercise ethical business practices, maintain a respect for the customers and run our business in ways that earn us the trust of those whom we encounter.

For further progress and growth we equipped ourselves internally to meet the dynamic requirements of our clients and market according to our policies and procedures and for this purpose we continually aim to shape, anticipate and understand the market.

In the end thanks to all of our valued customers for their trust they endow with us.

112019ANNUAL REPORT

CEO MESSAGETo our proud 21,903 policy holders and valued customers,

Farrukh AleemC.E.O


COMPANY INFORMATION

Board of Directors

Mian Hassan ManshaChairmanMahmood AkhtarDirectorInayat Ullah NiaziDirectorFarrukh AleemCEO

Aftab Ahmed KhanDirectorMuhammad AzamDirector

Management

Farrukh AleemCEOHafiz Khuram ShahzadCFOKhalid Mahmood ChohanCompany Secretary

Audit Committee

Mian Hassan ManshaChairmanAftab Ahmed KhanMemberInayat Ullah NiaziMember

External Auditors

A.F. Ferguson & Co.Chartered Accountants

Internal Auditors

Ahsan & AhsanChartered Accountants

Lawyers

Hamid Law Associates

Head Office

SGI House, 18 C / E1,Gulberg III, Lahore.Tel: 92-42-35775024-29Fax: 92-42-35775030E-mail: [email protected]: www.sgicl.com

132019ANNUAL REPORT

16,254

14,015

17,04416,790

14,352

18,313

2014 2015 2016 2017 2018 2019

2,261

2,734

2,152

1,8531,931

1,395

2014 2015 2016 2017 2018 2019

Underwrinting Reserve

110

8394

75

125

232

2014 2015 2016 2017 2018 2019

Net Claims

Investment Income

1,0379951,083

1,017996

799

2014 2015 2016 2017 2018 2019

Investment

959

800

914897

2014 2015 2016 2017 2018 2019

825

854

Profit After Tax

3,227

2,500

2,0002,0871,8511,816

2014 2015 2016 2017 2018 2019

Gross Premium

302294311

271

200174

2014 2015 2016 2017 2018 2019

Underwriting Income

696

600

503446441

524

2014 2015 2016 2017 2018 2019

Net Revenue


KEY FINANCIAL DATA

Description 2019 2018 2017 2016 2015 2014Rupees in Million

Gross Premium 3,227 2,516 2,000 2,087 1,851 1,816 Profit after Tax 959 854 825 800 914 897 Profit before Tax 1,354 1,292 1,278 1,186 1,094 971 Investment Income 1,037 995 1,083 1,017 996 799 Underwriting Income 302 294 310 271 200 174 Net Revenue 696 600 503 446 441 524 Net Claims 110 83 94 75 125 232 Paid up Capital 681 681 681 681 681 681 Authorized Share Capital 1,000 1,000 1,000 1,000 1,000 1,000 Underwriting Reserve 2,734 2,261 2,152 1,853 1,931 1,395 Investements 16,254 14,015 17,044 16,790 14,352 18,333 Fixed Assets 149 124 117 107 107 120 Retained Profit 10,496 9,877 9,364 8,881 8,423 7,812

2014 2015 2016 2017 2018 2019

MISC. & Others 124,150,857 79,825,677 126,818,592 212,728,241 245,870,808 341,718,323 MOTOR 256,417,556 221,940,854 221,403,965 268,003,619 344,453,390 488,561,303 MARINE 160,250,641 115,468,744 74,319,232 77,409,428 101,220,334 131,690,048 FIRE 1,274,925,183 1,433,504,124 1,664,597,343 1,442,116,868 1,824,624,646 2,265,097,650 TOTAL 1,815,744,237 1,850,739,399 2,087,139,132 2,000,258,156 2,516,169,178 3,227,067,324

DEPARTMENT WISE GROSS PREMIUM

-

500

2014 2015 2016 2017 2018 2019

1,000

1,500

2,000

2,500

3,000

3,500

Mill

ions

16,254

14,015

17,04416,790

14,352

18,313

2014 2015 2016 2017 2018 2019

2,261

2,734

2,152

1,8531,931

1,395

2014 2015 2016 2017 2018 2019

Underwrinting Reserve

110

8394

75

125

232

2014 2015 2016 2017 2018 2019

Net Claims

Investment Income

1,0379951,083

1,017996

799

2014 2015 2016 2017 2018 2019

Investment

959

800

914897

2014 2015 2016 2017 2018 2019

825

854

Profit After Tax

3,227

2,500

2,0002,0871,8511,816

2014 2015 2016 2017 2018 2019

Gross Premium

302294311

271

200174

2014 2015 2016 2017 2018 2019

Underwriting Income

696

600

503446441

524

2014 2015 2016 2017 2018 2019

Net Revenue

152019ANNUAL REPORT

KEY FINANCIAL DATAKEY FINANCIAL DATAGRAPHICAL HIGHLIGHTS


Fire is among those four natural elements which is beyond human control once engulfed and results to sever aftermath. Naturally we can take physical measures to control and financially we can take insurance cover to recover the financial loss.

Fire insurance gives the insured the requisite financial protection against assets acquired during his/her lifetime so that in the event of any misfortune the insured would be put in the same financial position he/she enjoyed just before the loss due to fire and lightning only.

There are two (2) main potential buyers of fire insurance• the individual• the entity (organization).

The Individuals need Fire Insurance as protection against his/her property including buildings, household goods and personal effects. The Organization including Commercial and Industrial entity could insure its buildings, plant, machinery and equipment, stock of raw materials, finished goods and profits.

Fire & Allied Perils: Adding to the above mentioned cover, this type of policy covers a number of additional perils which may differ from one

policy to another but most usually include the following perils:• Explosions• Riot & Strike• Malicious Damage• Earthquake (Fire & Shock)• Atmospheric disturbance• Aircraft Damage• Impact Damage

Additional Coverages:

1. Burglary/Theft:In market, it has been practiced that losses due to burglary & theft are endorse under fire policy

2. Business Interruption (BI)It is also known as Consequential Loss/Loss of Profit Insurance, any business loss that incurred due to fire covered under this policy, insurer pay certain amount till indemnity period define in policy.

FIRE & ALLIED PERLIS INSURANCE

Lloyd’s Coffee House was the first marine insurance market. It became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd’s of London and several related shipping and insurance businesses.

Under Marine Insurance Act 1906, Marine Insurance covers the loss or damage to:• Hull Insurance: Water vessel- Hull & Machinery • Aviation Insurance: Aero planes • Cargo Insurance: Goods in transit by sea, air and by rail/road

The Clauses used for by Sea Shipments:• Institute Cargo Clauses (A) – Covers all except general exclusions OR• Institute Cargo Clauses (B) - Restricted cover than ICC (A) OR• Institute Cargo Clauses (C) - Restricted cover than ICC (B)

The Clause used for by Air Shipments:• Institute Cargo Clauses Air – Covers all except general exclusions

The Clauses used for Inland Transit/Rail/Road:

• Road/Rail Cargo Clauses (A) - Covers all except general exclusions OR• Road/Rail Cargo Clauses (B) - Restricted cover than R/R (A)

War & Strike cover available in addition to above basic covers:

• Institute War Clauses (Cargo) on payment of additional premium• Institute Strike Clauses (Cargo) on payment of additional premium• Road/Rail Strike Clauses (Cargo) on payment of additional premium

Marine PerilsPerils of sea: Storms, lightning, snow, ice-burgs, fog, tides, rocks, sandbanks, volcanic eruption, heavy weather, Fire, explosion, Vessel Stranded, Sunk, burnt, Collision or contact of vessel, Theft, Willful Misconduct of assured, Malicious Damage, General average sacrifice, Jettison, washing overboard, Piracy and Rovers.

MARINE CARGO INSURANCE

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Motor insurance protects your vehicle against losses arising from unforeseen risks. It basically covers financial losses arising from accidents, theft and other natural calamities. Motor insurance is a contract for an automobile in which the insurance company agrees to pay for your financial loss resulting from a said specified event.

Motor Insurance is very important because too many road accidents reported on road on daily basis and fatalities in road accidents are moving up. Considering the high number and the poor state of roads, Motor insurance is a necessary requirement. By law, Motor Insurance is mandatory. Motor Insurance provides financial cover not only to you but also covers damages to third party (people travelling with you). Motor Insurance also protects you from losses arising from natural calamities like cyclone, earthquake etc.

Motor insurance covers is available for;1. Private Motor vehicles2. Commercial Motor vehicles

Private Motor Vehicles – Comprehensive motor covers your car and third party damages up to some extent.

Commercial Motor vehicles – offers comprehensive cover for all commercial vehicles like ambulances, carriage vans, trucks, prime movers etc.

MOTOR INSURANCE


192019ANNUAL REPORT

Engineering insurance refers to the insurance that provides economic safeguard to the risks faced by the ongoing construction project, installation project, and machines and equipment in project operation. Product categories: Depending on the project, it can be divided into construction project all risks insurance and installation project all risks insurance; depending on the attribute of the object, it can be divided into project all risks insurance, and machinery breakdown insurance.

Miscellaneous Insurance refers to contracts of insurance other than these of Life, Fire and Marine insurance. This branch of insurance is of recent origin and it covers a variety of risks.

1. Personal Accident Insurance - This means insurance for individuals or groups of person against any personal accident or illness. The risk insured in personal accident insurance is the bodily injury resulting solely and directly from accident caused by violent, external and visible means.

2. Liability Insurance - Just as a person can insure himself against the risk of death and personal injury, or damage, determination or destruction of property, there can also be an insurance against the risk of incurring liability to third parties. The risk of liability arising out of the use of property, comes under the category commonly called “liability insurance”. It includes -

i. Public Liability Insurance: That is, insurance against a liability imposed by law. For example, a house owner may obtain an insurance against his liability to invitees or licensees, arising from body injury or damage to property.

ii. Professional Negligence Insurance: These policies give professional indemnity cover to accountants, solicitors, lawyers, from any loss or injury due to any negligence in the conduct of their professional duties.

iii. Employer’s Liability Insurance: The liability of an employer under the modern labor laws, has considerably extended and the employers are tempted to take out insurances against such liabilities. For examples, when the employees retire, substantial amount become immediately payable by way of gratuity, commuted pension, leave salary, compensation, etc. and also the uncommuted pension becomes payable in future. Employers often take insurance policies which assure payment of such amounts, as and when these becomes payable.

iv. Guarantee Insurance: The main types of policies included in guarantee insurance are a) insurance for performance of contract, policies, the guarantor / underwriter insures the promisee or employer against the loss arising by non-performance by the promisor or the dishonesty of the employee.

Fidelity policies are the most common type of guarantee policies, taken under contracts of employment where the employee has an opportunity to be dishonest. Such policies cover the risk of losses arising by theft or embezzlement of money or securities, or by fraud, on the part of employees.

Money Policies – We insure “cash” either in transit or premises, two wide range of covers available

• Cash in Transit (CIT) - cash is insured while transit between designated locations.

• Cash in Safe (CIS) – cash is insured whilst in safe.

ENGINEERING & MISCELLANEOUS INSURANCE

192019ANNUAL REPORT


Bid BondsBid Bonds are required in connection with the submission of tenders for contracts with private/public owner. The subject is to guarantee that the bidder (Contractor), if awarded the contract, will enter into the contract and furnish the Prescribed Performance Bond. If the contractor is afterwards unable to enter into the contract and to furnish the required Performance Bond, the insurance company is liable to pay the bond amount to the owner.

Mobilization Adavance BondMobilization Advance Bond is required in cases where the oblige (owner) is pre-financing a contract; he may secure the repayment of the advance by means of a bond called Mobilization Advance Bond. The amount guaranteed should decrease in accordance with the portions of work performed. By this bond, the Insurance Company guaranteed the owner correct utilization of advance. In case contractor fails to fulfill their obligation and commit default the insurance company will pay the amount to the owner which is outstanding at that time.

Performance BondPerformance bond is required of a

contract (After accepting Bid and awarding of contract) to guarantee the full and the due performance of the contract according to plan and specifications. In case the contractor fails, to perform the contract in accordance with the terms and conditions of the contract, the insurance company will be liable to pay the bond amount to the owner on demand.

Supply BondsSupply bonds are similar in intent to performance bonds. They are issued for contracts to supply materials, goods, machinery at a specified time and place.

BONDS INSURANCE

212019ANNUAL REPORT

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The two general categories of crop insurance are called crop-yield insurance and crop-revenue insurance.

Farming is no easy task. It is one of the riskiest enterprises in the world, defined by uncontrollable conditions that are unlike any other profession. Bad weather, blight, insects, natural disasters, price fluctuations, and global subsidization all make it hard to make a living as a farmer.

That’s where crop insurance comes in. It’s basically no different than auto insurance or homeowner’s insurance. Banks require farmers to purchase it, just as they require insurance from homebuyers, but because of the risks unique to agriculture, it can be cost prohibitive. Without a strong infrastructure and investment, crop insurance would be too costly for most farmers to afford or for most private-sector insurance companies to widely provide.

In Pakistan, Government is offering incentives for farmers by offering loan from various private and government banks, in this capacity banks as well as farmers possess this insurance for any unfortunate event(s).

This insurance is very helpful for farmers to have financial safeguard in case of calamity

CROPS INSURANCE


Home Owner’s Insurance:Homeowners insurance provides you with financial protection in the event of a disaster or accident involving your home.

A standard homeowner’s insurance policy insures your home’s structure (house,) and your belongings in the event of a destructive event, such as a fire.

In addition, homeowner’s insurance policies are generally “package policies”, this means that the coverage includes not only damage to your property, but also your liability—that is, legal responsibility—for any injuries and property damage to others caused by you or members of your family.

The most common forms of household insurance are:Home insurance – covers financial losses associated with damage or loss of a property you own.

Contents insurance – covers financial losses caused by the loss, theft or damage of your possessions. In addition to home insurance. A policy may be

issue in combination of both.

Tenant’s insurance – a low-cost contents policy for tenants that provides limited cover for events such as fire and theft.

Landlord’s insurance – covers the risks associated with renting out a property.

HOME INSURANCE

232019ANNUAL REPORT

Cattle and livestock are the bread and butter for millions of farmers in Pakistan and all across the world. With this regard the insurance policy covers animals such as cows, buffaloes, bullocks, sheep and goats owned by the different individuals and which are used for commercial and for personal purposes against the risk of permanent total disablement or death due to accident and/or any diseases which the animal may contract during the policy period.

The policy covers death caused by: Accident inclusive of fire, lighting, flood, storm, hurricane, earthquake, cyclone, tornado etc. Diseases contracted or occurring during the period of the policy.

LIVE STOCK INSURANCE


NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that Annual General Meeting (AGM) of the members of Security General Insurance Company Limited (the “Company”) will be held on Monday, March 30, 2020 at 11:30 A.M. at Nishat House, 53-Lawrenec Road, Lahore to transact the following special business:

1. To receive, approve and adopt the audited accounts of the Company for the year ended December 31, 2019 together with the Directors’ and Auditors’ reports thereon.

2. To approve Final Cash Dividend @ 25% (i.e. Rs.2.50 per Share) for the year ended 2019, as recommended by the Board, in addition to 25% interim dividend already paid.

3. To appoint Statutory Auditors of the Company for the year 2020 and fix their remuneration.

4. Special Business:

a) To consider and if deemed fit, pass a resolution as Special Resolution, as proposed in the Statement of Material Facts, pursuant to the provisions of Section 199 of the Companies Act, 2017 to approve and authorize additional long-term equity investments by way of purchase of ordinary shares of Nishat Hotels and Properties Limited, an associated company;

b) To consider and if deemed fit, pass a resolution as Special Resolution, as proposed in the Statement of Material Facts, pursuant to the provisions of Section 199 of the Companies Act, 2017 to approve the increase in %age of equity investment in Hyundai Nishat Motor (Private) Limited (HNMPL), an associated company from 10% to upto 13% of the total paid up share capital of HNMPL provided that the aggregate limit of equity investment in HNMPL shall not exceed the amount of PKR 1,056,400,000 for subscription of 105,640,000 shares pursuant to the authority of the special resolutions passed on 28 March 2018 and December 12, 2019.

A Statement of Material Facts as required under Section 134(3) of the Companies Act 2017 concerning the aforesaid special business is annexed to the notice of meeting circulated to the members of the Company.

By order of the Board

Lahore ( KHALID MAHMOOD CHOHAN )March 09, 2020 COMPANY SECRETARY

252019ANNUAL REPORT


NOTES:

1. The Register of Members of the Company will remain closed from March 24, 2020 to March 31, 2020 (both days inclusive). Transfers received in order at the registered office of the Company by the close of business on March 23, 2019 will be considered in time for entitlement of 25% Final Cash Dividend and attending of Annual General Meeting.

2. A member entitled to attend and vote at this meeting may appoint any other member as his/her proxy to attend and vote. The Instrument appointing a proxy and the power of attorney or other authority under which it is signed or a notarial attested copy of the power of attorney must be deposited at the registered office of the Company at least 48 hours before the time of the meeting. A proxy must be a member of the company. A Company or a Corporation being a member of the Company may appoint a representative through a resolution of board of directors for attending and voting at the meeting.

STATEMENT UNDER SECTION 134(3) OF THE COMPANIES ACT 2017

This statement sets out material facts pertaining to the special business to be transacted at the Annual General Meeting of the Company to be held on March 30, 2020.

a. Additional Equity Investments in Nishat Hotel and Properties Limited (Associated Company)

Nishat Hotels and Properties Limited (NHPL) was incorporated on 04 October 2007 as a public company limited by shares. Its authorized share capital is Rs. 12,000,000,000/- (Rupees Twelve Billion Only) divided into 1,200,000,000 (Rupees One Billion Two Hundred Million) ordinary shares of PKR 10 each. Its main object is to carry on retail and hospitality business in Pakistan. NHPL has constructed Emporium Mall and Nishat Hotel which are fully operational.

The company already owns and holds 111,821,737 ordinary shares of NHPL. It is proposed to make additional long term investment of maximum of PKR 900,000,000 for purchase of 56,698,229 ordinary shares of NHPL at a maximum price of PKR 16.13213 per share.

As required by the Regulations, the directors of the Company certify that they have carried out necessary due diligence for the proposed additional long-term equity investment before making recommendation for approval of shareholders and the duly signed recommendation of the due diligence report shall be made available to the members for inspection at the meeting along with latest audited financial statements of the associated company.

The following resolution is proposed to be passed as special resolution, with or without any modification.

RESOLVED THAT approval of the members of Security General Insurance Company Limited (“the Company”) be and is hereby accorded and the Company be and is hereby authorized in terms of Section 199 and other applicable provisions of the Companies Act, 2017 to make additional long-term equity investment of Rs. 900,000,000 (Rupees Nine Hundred Million Only) for purchase of 56,698,229 shares of Nishat Hotels and Properties Limited (NHPL), an associated company and as per other terms and conditions disclosed to the members.

RESOLVED FURTHER THAT the Chief Executive Officer and/or Chief Financial Officer and/or Company Secretary of the Company be and are hereby singly empowered and authorized to do all acts, matters, deeds and things, take any or all necessary actions including signing and execution of agreement(s) and to complete all legal formalities including filing of documents as may be necessary or incidental expedient for


the purpose of implementing the aforesaid resolutions.

RESOLVED FURTHER THAT the Company be and is hereby authorized to dispose of through any mode, a part or all of equity investment in NHPL made by the Company from time to time and the Chief Executive Officer and / or Chief Financial Officer and / or Company Secretary be and are hereby authorized singly to take the decision of divestment as they may deem appropriate and necessary in the best interest of the Company and its members.

Information under Regulation 3 of the Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2017

Disclosure for all types of investments:(A) Disclosure regarding associated company(i) Name of Associated Company or Associated

UndertakingNishat Hotels and Properties Limited (“NHPL”)

(ii) Basis of Relationship Common Directorship(iii) Earnings / (Loss) per Share for the last three years PKR 1.42 – 2019 Audited

PKR (0.30) – 2018 Audited (Restated)PKR (0.23) – 2017 Audited

(iv) Break-up value per Share, based on last Audited financial statements

PKR 18.09 per share as at 30th June 2019.

(v) Financial position, including main items of statement of financial position and profit and loss account on the basis of its latest financial statements

Audited financial statements as at 30th June 2019

(vi) In case of investment in relation to a project of associated company or associated undertaking that has not commenced operations, following further information, namely

N/A

I Description of the project and its history since conceptualization

N/A

Rs. in millionsBalance Sheet:AssetsNon-current assets 34,901Current assets 2,171Total assets 37,072LiabilitiesBorrowings 13,497Other liabilities 5,488

18,985

Equity 18,087Profit & loss:Sales 4,233 Gross Profit 1,740Net Profit after tax 1,376 EPS 1.42


272019ANNUAL REPORT

II Starting date and expected date of completion of work

N/A

III Time by which such project shall become commercially operational

N/A

IV Expected time by which the project shall start paying return on investment

N/A

V Funds invested or to be invested by the promoters, sponsors, associated company or associated undertaking distinguishing between cash and non-cash amounts

N/A

(B) General Disclosures:(i) Maximum amount of investment to be made PKR 900,000,000 (Rupees Nine Hundred Million

Only).(ii) Purpose, benefits likely to accrue to the investing

company and its members from such investment and period of investment

To earn dividend income and / or capital gains which will enhance the profitability of Security General Insurance Company Limited and add to the shareholders’ value of the members of the investing Company.

The investment in NHPL will be for long term.(iii) Sources of funds to be utilized for investment and

where the investment is intended to be made using borrowed funds:

The investment will be made from own sources and if needed funds will be borrowed.

(I) Justification for investment through borrowings The investment may be made through borrowed funds which is justified in view of long-term prospects and expected earnings of NHPL.

(II) Detail of Collateral, guarantees provided and assets pledged for obtaining such funds

Land/Building/Investments/Receivables will be pledged for obtaining funds, if required from financial institutions.

(III) Cost benefit analysis Based on the prospects of NHPL, Long term benefits expected to be accrued to SGICL are much more than the cost of borrowed funds.

(iv) Salient features of the agreement(s), if any, with associated company or associated undertaking with regards to the proposed investment

NA as shares will be purchased from an existing shareholder.



(v) Direct or indirect interest of Directors, sponsors, majority shareholders and their relatives, if any, in the associated company or associated undertaking or the transaction under consideration

The interest, direct or indirect in the associated company and the transaction under consideration is detailed as under:

The directors of Security General Insurance Company Limited (SGI), their relatives and associated companies holding shares of Nishat Hotels and Properties Limited (NHPL) are interested, directly or indirectly, to the extent of their shareholding as under:-Directors: % of ShareholdingMian Hassan Mansha (Common Director) 21.82Mr. Muhammad Azam (Common Director) 0.00Mr. I.U. Niazi (Common Director) 0.00

Relatives:Mian Raza Mansha 21.69Mian Umer Mansha 21.82Both brothers of Mian Hassan Mansha.

Associated Companies/shareholdersNishat Mills Limited 7.40NHPL is not a shareholder of the Company. The directors / sponsors of NHPL are interested in the Company to the extent of their shareholding as under:-Name % of Shareholding Mian Raza Mansha 11.90Mian Umer Mansha 13.30Mian Hassan Mansha (Common Director) 13.30Mr. Muhammad Azam (Common Director) 0.00Mr. I.U. Niazi (Common Director) 0.00

There is no other interest except their directorship/remuneration attached thereto and to the extent of their shareholdings. The associated Companies holding shares of NHPL are interested in the Company to the extent of their shareholding as follows:

Name % of Shareholding Nishat Mills Limited 15.02

(vi) In case any investment in associated company or associated undertaking has already been made, the performance review of such investment including complete information/justification for any impairment or write offs

The Company has invested PKR 1,359,102,133 for purchase of 111,821,737 ordinary shares with Rs.10/- per share face value in NHPL. NHPL’s earning per share for the year ended June 30, 2019 was PKR 1.42 There is no impairment/write off of this investment.

(vii) Any other important details necessary for the members to understand the transaction

None


292019ANNUAL REPORT

Additional disclosure regarding Equity Investment(i) Maximum price at which securities will be acquired 16.13213(ii) In case the purchase price is higher than market value

in case of listed securities and fair value in case of unlisted securities, justification thereof

N/A

(iii) Maximum number of securities to be acquired 56,698,229 Shares (iv) Number of securities and percentage thereof held

before and after the proposed investment No. of Shares %age Before 111,821,737 11.18After 168,519,966 16.85

(v) Current and preceding twelve weeks’ weighted average market price where investment is proposed to be made in listed securities

N/A

(vi) Fair value determined in terms of sub-regulation (1) regulation 5 for investments in unlisted securities

Rs 17.79

b. Increase in %age of equity investment in Hyundai Nishat Motor (Private) LimitedSecurity General Insurance Company Limited (the “Company”) holds 69,750,000 ordinary share of PKR 10 each of HNMPL comprising 10% equity stake. The Company is authorized to make equity investment of upto PKR 1,056,400,000 for acquisition of 105,640,000 shares of HNMPL at PKR 10 each pursuant to the special resolutions passed by the shareholders on 28 March 2018 and December 12, 2019, the %age of Company’s equity investment in NHMPL as mentioned in the Statement of Material Facts was 10% of the total paid up share capital of HNMPL. This %age may increase to upto 13% of the total paid up share capital of HNMPL for acquiring shares of HNMPL due to non-subscription by other shareholders of HNMPL. The Company’s aggregate amount of equity investment in HNMPL at any point in time shall not exceed the amount of PKR 1,056,400,000 pursuant to the already passed special resolutions by the shareholder. However, as the provision of Section 199(4) of the Companies Act, 2017 requires that any change in the terms and conditions attached to the investment in associated companies shall be made only under the authority of a special resolution. There is no change in other terms and conditions of the equity investments in HNMPL. Accordingly, the Board of directors has proposed the passing of the following resolution as special resolution, with or without any modification:

RESOLVED THAT approval of the members of Security General Insurance Limited (the “Company”) be and is hereby accorded to approve the increase in %age of equity investment in Hyundai Nishat Motor (Pvt) Limited (HNMPL), an associated company from 12% to upto 13% of the total paid up share capital of HNMPL provided that the aggregate limit of equity investment in HNMPL shall not exceed the amount of PKR 1,056,400,000 for acquisition of 105,640,000 shares pursuant to the authority of the special resolutions passed on 28 March, 2018 and 12 December, 2019

RESOLVED FURTHER THAT the Chief Executive Officer and/or Chief Financial Officer and/or Company Secretary of the Company be and are hereby singly empowered and authorized to do all acts, matters, deeds and things, take any or all necessary actions including signing and execution of agreement(s) and to complete all legal formalities including filing of documents as may be necessary or incidental expedient for the purpose of implementing the aforesaid resolutions.




Name of Investee Company

Nishat Hotels and Properties Ltd. Hyundai Nishat Motor (Pvt) Limited (HNMPL)

D. G. Khan Cement. Co. Ltd.

Nishat Mills Limited

Total Investment Approved:

PKR 200,000,000 (Rupees two Hundred Million Only) by way of purchase of shares was approved by members in AGM held on April 30, 2019 for the period of three (3) years

PKR 618,872,963 (Rupees Six Hundred Eighteen Million Eight Hundred Seventy Two Thousand Nine Hundred Sixty Three Only) by way of purchase of shares was approved by members in EOGM held on December 12, 2019

Equity investment upto PKR 1,056,400,000 million (PKR One Billion Fifty Six Million Four Hundred Thousand Only) was approved by members in EOGM held on March 28, 2018 and December 12, 2019. For a period of Four (4) years.

Guarantee / continuing Stand by Letter(s) of Credit (SBLC) for an amount of up to PKR 1,277,100,000 for a tenure of 7.5years was approved by members in EOGM held on March 28, 2018 and December 12, 2019

Equity investment upto PKR 500 million (PKR Five Hundred Million Only) was approved by members in EOGM held on August 19, 2019.

Equity investment upto PKR 500 million (PKR Five Hundred Million Only) was approved by members in EOGM held on August 19, 2019.

Amount of Investment Made to date:

Rs. 29.61 Million Rs. 618.87 Million Rs. 697.50 Million Rs. 989.49 Million Nil Nil

Reasons for deviations from the approved timeline of investment, where investment decision was to be implemented in specified time:

Partial investment has been made in investee company. Further investment will be as and when request is made by the investee company. There is no deviation from the approved timeline.

No Deviation.Fully Implemented

Partial investment has been made in investee company. Commercial operations of the investee company have not yet started. The Company will make fur-ther equity investment as and when further shares offered by HNMPL. There is no deviation from the approved timeline.

Partial guarantee has been extended after the approval. Further guarantee will be extended on request of the investee company. There is no deviation from the approved timeline.

No investment has been made in investee company. Further investment will be made depending on market conditions at appropriate time. There is no deviation from the approved timeline.

No investment has been made in investee company. Further investment will be made depending on market conditions at appropriate time. There is no deviation from the approved timeline.

Material change in financial statements of associated company or associated undertaking since date of the resolution passed for approval of investment in such company:

At the time of approval, as per then available latest financial statements for the half year ended December 31, 2018, the basic Loss per Share was Rs. (0.39) and a fair value of Rs. 14.47. As per Latest available financial statements for the half year ended December 31, , 2019 the Earnings per share is Rs. (0.46) and breakup value per Share is Rs. 17.63.

At the time of approval, as per then latest available financial statements the basic earnings per Share was Rs. 1.42 and Break-up Value per Share was Rs. 18.09. As per Latest available financial statements for the half year ended December 31, 2019 the Earnings per share is Rs. (0.46) and breakup value per Share is Rs. 17.63.

At the time of approval, as per available latest audited financial statements for the year ended December 31, 2017, the basic loss per share was Rs.5.74 and breakup value per share was Rs. 4.85. As per latest available financial statements for the half year ended June 30, 2019 the Basic Loss per share is Rs. (0.53) and breakup value per share is Rs. 9.29.

At the time of approval, as per available latest audited financial statements for the year ended December 31, 2017, the basic loss per share was Rs.5.74 and breakup value per share was Rs. 4.85. As per latest available financial statements for the half year ended June 30, 2019 the Basic Loss per share is Rs. (0.53) and breakup value per share is Rs. 9.29.

At the time of approval, as per then available latest financial statements for the half year ended December 31, 2018, the basic Earnings per Share was Rs. 3.98 and a fair value of Rs. 80.15. As per Latest available financial statements for the half year ended December 31 , 2019 the Basic Loss per share is Rs. (1.93) and breakup value per Share is Rs.167.58 .

At the time of approval, as per then available latest financial statements for the half year ended December 31, 2018, the basic earnings per Share was Rs. 9.00 and a fair value of Rs. 126.53. As per Latest available financial statements for the half year ended December 31, , 2019 the Basic Earnings per share is Rs. 5.38 and breakup value per Share is Rs. 207.83.

Statement Under Rule 4(2) of the Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2017

312019ANNUAL REPORT

DIRECTORS’ REPORT TO THE MEMBERS

Dec, 2019 Dec, 2018 Increase/Decrease

Rupees in Million %

Gross Premium & Contribution written 3,227 2,516 28Net Premium 696 600 16Net Commission 13 7 86Net Claims 110 83 33Profit from underwriting business 302 294 3Other income (not attributable to Investment activities) 48 28 71Investment income 1,037 995 4Financial charges 25 9 178Profit before tax 1,354 1,292 5Profit after tax 959 854 12

3,227

2,516

2,0002,0871,8511,816

2014 2015 2016 2017 2018 2019

Gross Premium

Rup

ees

in M

illio

ns

-

500

1,000

1,500

2,000

2,500

3,000

3,500

(100)

100

300

500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

3,300

Underwriting Profit Expenses Interest & Dividend Income Gross Premium

2014 2015 2016 2017 2018 2019

HIGHLIGHTS

On behalf of the Board of Directors of Security General Insurance Company Limited, I am pleased to present the 24th annual report of your company for the year ended December 31, 2019.

COMPANY’S PERFORMANCE DURING 2019:

SGI underwrote a gross premium of Rs.3.2 billion including takaful contribution during the year 2019.

Fixed Assets

Investment

Other Asset

Cash and Bank Deposits

Creditors and Accruals

Underwriting provision

Share capital

Reserves

Retained Earnings

Borrowing

Deffered Liability

Cash and Bank Deposits, 269

Share capital, 681

Investment, 16,254

Fixed Assets, 149

Deffered Liability, 187

Borrowing,193

Retained Earnings, 10,496

Reserves, 3,742

Share capital, 681

Underwriting provision, 2,827

Creditors and Accruals, 414Other Asset, 5,148


UNDERWRITING ACTIVITY:

SGI underwrote a gross premium of Rs. 3.2 billion during the year 2019. Underwriting profit for the year stands at Rs. 302 million (2018: Rs. 294 million). Underwriting profit bears a percentage of 43% to the net premium revenue.

FIRE & PROPERTY DAMAGE:

Premium written in Fire business has increased as compared to same period during last year by 23%. The underwriting profit from fire business for period ended December 31st 2019 is 45%. Fire and property portfolio represent 72% of the total underwriting portfolio of SGI.

MARINE AVIATION AND TRANSPORT BUSINESS:

Premium written in Marine business has increased as compared to same period during last year by 20%. The underwriting profit from Marine business for period ended December 31st 2019 is 93%. Marine portfolio represents 4% of the total underwriting portfolio of SGI.

MOTOR:

The gross premium from motor business has increased from Rs. 341 million during the period ended December 31st 2018 to Rs. 429 million during the period ended December 31st 2019. The profitability from the motor business for the period ended December 31st 2019 is 43%.

MISCELLENOUS:

The gross premium from miscellaneous business is increased from Rs. 245 million for the Year ended December 31st 2018 to Rs. 336 million for the year ended December 31st 2019.

CLAIMS:

The overall claims expenses has increased from Rs. 83 million during the period ended December 31st 2018 to Rs. 110 million during the period ended December 31st 2019. Net Claims are 16% of premium (2018: 14%).

INVESTMENT:

Net Losses / Net Premium

Net Premium

Net Claims

232

125

75

94

83

110

524

441

446

503

600

696

- 100 200 300 400 500 600 700 800

2014

2015

2016

2017

2018

2019

Rup

ees

in M

illio

ns

1275

1434

1665

1445

1809

2200

0 500 1000 1500 2000 2500

2014

2015

2016

2017

2018

2019

Premium Written (Fire)

160

115

74

80

100

127

0 20 40 60 80 100 120 140 160 180

2014

2015

2016

2017

2018

2019

Premium Written (Marine)

256

222

221

272

341

481

0 100 200 300 400 500 600

2014

2015

2016

2017

2018

2019

Premium Written (Motor)

124

80

127

216

245

395

0 50 100 150 200 250 300 350 400 450

2014

2015

2016

2017

2018

2019

Premium Written (Misc.)

232

125

75

94

83

112

0 50 100 150 200 250

2014

2015

2016

2017

2018

2019

Net Claims


332019ANNUAL REPORT

The market value of our investment portfolio increased from Rs. 14 billion to Rs. 16 billion on the December 31st 2019 the Company earned dividend of Rs. 1,028 million from its investment portfolio (2018: 984 million).

CASH FLOW:

As of December 31st 2019, the net cash flow generated from underwriting activities is positive.

EARNING PER SHARE:

Earnings per share has increased from Rs. 12.54 during the period ended December 31st 2018 to Rs. 14.10 during the period ended December 31st 2019.

APPROPIRATIONS:

Directors, in their meeting held on March 09, 2020, have recommended a 25% cash dividend. This is in addition to 25% interim cash dividend paid on the basis of half yearly results for 2019.

CREDIT RATING:

JCR-VIS Credit Rating Company Ltd., has maintained the Insurer Financial Strength (IFS) Rating of SGI at ‘AA’

BOARD AUDIT COMMITTEE:

As required under the code of corporate governance for insurance companies, the board audit committee reviewed the results of all four quarter for the year. Following persons have remained its members during the year:

STATUTORY AUDIT:

The auditors have expressed an unqualified opinion on the financial statement of the Company for the year 2019.

CORPORATE AND FINANCIAL REPORTING FRAMEWORK:

In Compliance with the financial reporting framework of the code of corporate governance the directors confirm the following:

- The Financial statements together with the notes thereon have been drawn up in conformity with the Companies Act 2017, the Insurance Ordinance 2000, the Insurance Rule 2017, the insurance Accounting Regulations 2017 and Takaful rules 2012. These statements present fairly the company’s state of affair, results of its operations, cash flow and changes in equity.

- Proper books of accounts have been maintained by the company.

- Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.

- The international accounting standards as applicable in Pakistan have been followed in preparation of financial statements and any departure there from has been adequately disclosed.

- The system of internal control is sound in design and has been effectively implemented and monitored.

- There is no significant doubt upon the company’s ability to continue as a going concern.

- There has been no material departure from the best practices of corporate governance.

- Key operating and financial data of last six years is available in the annual report.

- All applicable statutory payments on account of taxes, duties etc were regularly and timely deposited in the Government treasury.

- Value of investment of Provident Fund as at 31st December 2019 stands at Rs.39.5 million and investment of Gratuity fund as at December 31st 2019, stands at Rs.37 million.


Name of Member Category

Mian Hassan Mansha Chairman

Mr. Inayat Ullah Niazi Member

Mr. Aftab Ahmed Khan Member


- During the year under review Six Board meetings were attended by the directors and detail is as follows:

* Mr. Badar Ul Hassan resgined and Mr. Aftab Ahmad Khan appointed as Director in place of Mr. Badar Ul Hassan with Effect from April 09, 2019.

- The aggregate shares held by the Associated Companies are:

1. Nishat Mills Limited 10,226,244

- The pattern of shareholding is given on page 40 of this report.

There are no material changes /commitments between the year end and the date of signing of this report except those mentioned in appropriations

FUTURE OUTLOOK 2020:

The economy of Pakistan, after two relatively challenging years, appears to be heading towards positive development. Whilst inflation remains high, primarily attributed to increase in food and utility prices, it is expected to go down over the course of year 2020, mainly attributed to the transition to a market-based exchange rate system, improvement in the business community’s outlook of the economy, and fiscal developments remaining on track, as per commitments under the IMF program.

Our strategy for 2020 is designed to achieve steady growth in the challenging business environment in order to attain better position in the industry.

Name of Member

No. of Meetings

Mian Hassan Mansha (Chairman) 4

Mr. Mahmood Akhtar 5

Mr. Inayat Ullah Niazi 5

*Mr. Badar ul Hassan 0

Muhammad Azam 4

*Mr. Aftab Ahmed Khan 4

Mr. Farrukh Aleem (CEO) 5

We are focusing more closely on products and customer segment where we have a competitive edge, those where we can offer a greater value proposition to our customers.

Going forward, however, we expect uptick in inflation will continue in 2020 and interest rates are also expected to increase a bit for investment, the Company will adopt a balanced strategy to benefit from equity markets performance along with upward revision in interest rates through money market instruments.

ACKNOWLEDGEMENTS:

The loyalty of our patron clients has enabled us to maintain and improve our market share over a period of time. We are grateful to them for reposing their confidence in us. We acknowledge the support of our shares holders which allows us to improve our sound position in the market. Thanks are due to our reinsurance brokers for their professional assistance and reinsurers for their valued support. Our gratitude and appreciation is also due to SECP for their guidance and cooperation. We acknowledge the professionalism and hard work of our developments officers, staff members and Executives who helped the Company to achieve its goals.

On behalf of Board of Directors

FARRUKH ALEEM CEO


LahoreMarch 09, 2020

DIRECTORMAHMOOD AKHTAR

352019ANNUAL REPORT

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الوہرامرچ 09, 2020

2020

ارتخ ومحمد ز

ٹ ز�یئ

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۔ ی �ہ رکےت ت

دصت�ی یک ذ�ی دنمرہج زز ٹ ز�ی

ئڈا�

روزل ٹ 2017، اوشنرسن ا�ی 2000، ینپمک ف ف آرڈ�ی اوشنرسن ہک وج وگوشارے ایت املی

کی ار یت

� اطمقب روزل 2012 ےک اکتلف �ف 2017 اور ش ی� ول� ر�ی ااکوگنٹن 2017، اوشنرسن

اکعیس یک دبت�ی می ویٹئ ا�ی اور اہبؤ ف ، دقن ش امعمالت ، آرپ�ی باری اکرو� وگوشارے �ی اور ی �ہ۔ ی �ہ رکےت

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د�ی ب یت

ز�ت

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ف� اتحمط اور انمسب ے

ف م�ی�ف �

ت �ااکؤگنٹن اور وگوشارے ایت املی ۔ ےہ ا گی

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رپ وطر انمسب وت ےہ دبت�ی می اس وکیئ ارگ اور ےہ۔ یئگ یک زوی ی �پ می اری یت

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ےہ۔ ز ت

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ےہ۔ روےپ

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ف ئاج� ز ز�ی

ےہ۔ ذ�ی دنمرہج

دبرانسحل انجب وک ادمحاخن ااتفب انجب اور ا د�ی دے ااعفتس ےن دبرانسحل ۔ انجب

ا۔ گی ا کی رقمر ز ٹ ز�ی

ئڈا� رپ 09 ارپ�ی 2019 وک ہگج یک

ےہ۔ ذ�ی درج صصح ےک ز ی�ف � پ�ف کم�ٹ ا�ی ویس ا�ی

د 10,226,244ٹ ٹ ملی زلم اط ش ف

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�

ااکری ااکریرسام�ی رسام�ی

می 14 دقر یک و وفلی وپرٹ ےک ااکری رسام�ی ارے �ہ اسل 31 دربمس 2019 می ااتتخم امکن( د ٹ ف

د� ٹ و�ی انمعف )ڈ�ی اک صصح ےن ینپمک ےہ وہا ااضہف اک روےپ ےس 16 ارب روےپ ارب روےپ( ف ا )2018: 984 لمی امک�ی ےس و وفلی وپرٹ ےک ااکری رسام�ی اینپ روےپ ف 1,028 لمی

ےہ۔

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ش کی اخصل اسل 31 دربمس 2018 رپ ےہ۔

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�ی اسل31 دربمس2018 می دوران ےہ ا آ�ی می ف

د�ی ااضہف می آدمین صصح یف ےہ۔ 14.10 روےپ اسل31 دربمس 2019 می 12.54 ےسااتتخم

ا رک�ف صتخم اک وفادئ اور اانمعف رک�ف صتخم اک وفادئ اور انمعف

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�فٹ � م�ی وج ا09امرچ 2020 وک

د یف

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آڈٹ آف وبرڈ تحت ےک رضورت یک وگررن ٹ اکروپر�ی آف وکڈ ےک ینپمک اوشنرسن ہک ا ی �بزاد

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372019ANNUAL REPORT

لمع راگنٹئ در ٹ فلمعا� راگنٹئ در ٹ فا�

انمعف ےہ۔ ا کی روےپ یم 3.2 ارب یم� �

رپ ومجمیع اسل 2019 می دوران ےن رنجل وریٹ سی294 ےہ . )2018 می روےپ اسل 2019 می 302 ارب زاےئ �ب راگنٹئ در ٹ ف

ا�ےہ۔ د ی

فاک 43 � آدمین یم یم� �

رپ اخصل احلبظ راگنٹئ در ٹ فا� زاےئ �ب روےپ ( انمعف ف لمی

داد یئ

اج� اور دادآزشتدیگ یئ

اج� اور آزشتدیگ

ی دورا�ف ایس احلبظ 2018 ےک ےہ۔ ا آ�ی می ف

د�ی ااضہف د یف

می 23 � ےبعش ےک آزشتدیگ �ی ۔ ےہ د ی

فاسل 31 دربمس 2019 رپ 45 � ااتتخم می ہبعش ےک آزشتدیگ انمعف ےک

ےہ۔ ا رک�ت امندنئیگ یک یم یم� �رپ ومجمیع د ی

فےک72 � رنجل وریٹ سی ہبعش

لمح و لقن اور بازی � راین ، وہا لمحاہجز و لقن اور بازی � راین ، وہا اہجز

راین اہجز ےہ۔ ا آ�ی می ف

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می 20 � راین اہجز ےک اسل ےلھچپ زاےئ �ب ومازہن ےک رنجل وریٹ سی راہ۔ د ی

فاسل 31 دربمس 2019 می 93 � ااتتخم انمعف راگنٹئ در ٹ ف

ا� اک ےہ ا رک�ت امندنئیگ یک د ی

فےک 4 � یم یم� �

رپ ومجمیع بار اکرو� اک راین اہجز

ومرٹومرٹ

وہا دوران اسل 31 دربمس 2019 ااضہف اک ف می 341 لمی بار اکرو� ےک ومرٹ یم یم� �رپ ومجمیع

اسل 31 دربمس 2018 ےک انمعف % 43 ےہ۔وج راگنٹئ در ٹ فا� اک بار اکرو� ےک ومرٹ ےہ۔

اھت۔ ف می 429 لمی

رفتمقرفتمق

اسل 31 دربمس 2019 ےس ااتتخم ف ااضہف 245 لمی می یم یم� �رپ ومجمیع ےک بار اکرو� رفتمق

ےہ۔ اسل 31 دربمس 2019 وہا ااتتخم ف 336 لمی

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یمک / ااضہفیمک / ااضہف دربمسدربمس20182018 دربمسدربمس20192019%

ف لمی ی فرو�پ لمی ی رو�پ

28 2,516 3,22716 600 69686 7 13 33 83 110 3 294 302

71 28 48 4 995 1,037

178 9 25 5 1,292 1,354 12 854 959


اسل 2019 دوران اکررکدیگ یک ینپمک

392019ANNUAL REPORT

Name of Shareholder Shares Held Percentage

1 Allied Bank Limited 12,401,871 18.222 Nishat Mills Limited 10,226,244 15.023 Adamjee Insurance Co. Ltd 9,681,374 14.224 Mrs. Naz Mansha 5,101,740 7.505 Mian Hassan Mansha 9,049,371 13.306 Mian Umer Mansha 9,049,371 13.307 Mian Raza Mansha 8,133,467 11.95

Associated Company:-Nishat Mills Limited 10,226,244 15.02

Description No of Shareholders Shares Held Percentage

Directors, CEO & their spouse minor childernMian Hassan Mansha (Director) 1 9,049,371 13.30Mr. Muhammad Azam (Director) 1 500 -Mr. Inayat Ullah Niazi (Director) 1 500 -Mr. Aftab Amhed Khan (Director) 1 500 -Mr. Mehmood Akhtar (Director) 1 500 -Associated companies, Undertakings & Related parties”Nishat Mills Ltd. 1 10,226,244 15.02NIT and ICP -Public Sector Companies & Corporations -Executives -“Banks, Development Financial Institutions, 1 12,401,871 18.22Non-Banking Financial Institution.Insurance Companies 2 10,138,412 14.90Modarabas and Mutual Funds” -General Public

a. Local -b. Foreign -

Othersa - Joint stock companies 2 15,668,819 4.50b - All others (Individuals) 6 10,575,783 34.06

Total 17 68,062,500 100.00

DISCLOSURE OF CATEGORIES OF SHAREHOLDINGas at December 31, 2019

SHAREHOLDERS HOLDING FIVE PERCENT OR MORE VOTING INTERESTas at December 31, 2019


ShareholdingNumber of

Shareholders From To Total Shares Held

6 1 500 3,000

1 455001 460000 457,038

1 640001 645000 643,667

1 915001 920000 915,903

1 2395001 2400000 2,399,454

1 5100001 5105000 5,101,740

1 8130001 8135000 8,133,467

2 9045001 9050000 18,098,742

1 9680001 9685000 9,681,374

1 10225001 10230000 10,226,244

1 12400001 12405000 12,401,871

17 68,062,500

Categories of Members Numbers Shares Held Percentage

Individuals 11 29,853,398 43.86

Investment Companies 0 0 0.00

Insurance Companies 2 10,138,412 14.90

Joint Stock Companies 3 15,668,819 23.02

Financial Institutions 1 12,401,871 18.22

Modaraba Companies 0 0 0.00

Foreign Investors 0 0 0.00

Others 0 0 0.00

Total 17 68,062,500 100.00

PATTERN OF SHARE HOLDINGas at December 31, 2019

CLASSIFICATION OF SHARES BY CATEGORIESas at December 31, 2019

INDEPENDENT AUDITOR’S REVIEW REPORT To the members of Security General Insurance Company Limited Review Report on the Statement of Compliance contained in the Code of Corporate Governance for Insurers, 2016

We have reviewed the enclosed Statement of Compliance with the Code of Corporate Governance for Insurers, 2016 (the Code) prepared by the Board of Directors of Security General Insurance Company Limited (‘the Company’) for the year ended December 31, 2019 to comply with the Code issued by the Securities and Exchange Commission of Pakistan applicable to unlisted insurance companies.

The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility is to review whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Code and report if it does not and to highlight any non-compliance with the requirements of the Code. A review is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to comply with the Code.

As a part of our audit of the financial statements, we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks.

The Code requires the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions and also ensure compliance with the requirements of section 208 of the Companies Act, 2017. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out procedures to assess and determine the Company’s process for identification of related parties and that whether the related party transactions were undertaken at arm’s length price or not.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the requirements contained in the Code as applicable to the Company for the year ended December 31, 2019.

A.F.Ferguson & Co. Chartered Accountants Name of engagement partner: Amer Raza Mir Lahore Date: March 10, 2020

412019ANNUAL REPORT

INDEPENDENT AUDITOR’S REVIEW REPORT To the members of Security General Insurance Company Limited Review Report on the Statement of Compliance contained in the Code of Corporate Governance for Insurers, 2016

We have reviewed the enclosed Statement of Compliance with the Code of Corporate Governance for Insurers, 2016 (the Code) prepared by the Board of Directors of Security General Insurance Company Limited (‘the Company’) for the year ended December 31, 2019 to comply with the Code issued by the Securities and Exchange Commission of Pakistan applicable to unlisted insurance companies.

The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility is to review whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Code and report if it does not and to highlight any non-compliance with the requirements of the Code. A review is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to comply with the Code.

As a part of our audit of the financial statements, we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks.

The Code requires the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions and also ensure compliance with the requirements of section 208 of the Companies Act, 2017. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out procedures to assess and determine the Company’s process for identification of related parties and that whether the related party transactions were undertaken at arm’s length price or not.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the requirements contained in the Code as applicable to the Company for the year ended December 31, 2019.



with the Code of Corporate Governance for Insurers, 2016Security General Insurance Company LTD.For the Year ended December 31, 2019

STATEMENT OF COMPLIANCEThis statement is being presented in compliance with the Code of Corporate Governance for Insurers, 2016 for the purpose of establishing a framework of good governance, whereby an Insurer is managed in compliance with the best practices of corporate governance.

The Company has applied the principles contained in the Code in the following manner::

1. As the Company is an unlisted company, therefore, it is not mandatory for the Company to have Independent Nonexecutive Director as well as minority interest. At present the Board includes:

2. The directors have confirmed that none of them is serving as a director in more than seven listed companies.

3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by a stock exchange.

4. A casual vacancy occurred on the Board on April 9, 2019 and was filled by the Directors within 30 days thereof.

5. The Company has prepared a “Statement of Ethics and Business Practices” as Code of Conduct and has ensured that appropriate steps have been taken to disseminate among all the directors and employees of the Company.

6. The Board has developed a vision / mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained.

7. All powers of the Board have been duly exercised and decisions on material transactions including appointment and determination of remuneration and terms and conditions of employment of Chief Executive

Officer (CEO) and the key officers, have been taken by the Board.

8. The meetings of the Board were presided over by the Chairman. The Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven (7) days before the meetings. The minutes of the meetings were appropriately recorded and circulated.

9. The Board has established a system of sound internal control, which is effectively implemented at all levels within the Company. The Company has adopted and complied with all the necessary aspects of internal controls given in the Code.

10. All the directors have either attended the orientation course or have been provided appropriate materials/guidelines in this regard and as such they are aware of their duties and responsibilities.

11. There was no appointment of Chief Financial Officer (CFO) and Corporate Secretary. The Board has revised the remuneration of CFO.

12. The Directors’ Report for this year has been prepared in compliance with the requirements of the Code of Corporate Governance for insurers, 2016 and fully describes the salient matters required to be disclosed.

13. The financial statements of the Company were duly endorsed by Chief Executive Officer and Chief Financial Officer before approval of the Board.

14. The directors, Chief Executive Officer and other executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholding.

15. The Company has complied with all the corporate and financial reporting requirements of the Code of Corporate Governance for insurers, 2016.

16. The Board has formed the following Management Committees:

Category Names

Independent Director Nil

Executive Director Mr. Farrukh Aleem

Non Executive Directors Mr. Hassan ManshaMr. Inayat Ullah NiaziMr. Aftab Ahmed KhanMr. Muhammad AzamMr. Mehmood Akhtar

Underwriting Committee:


Mr. Farrukh Aleem Chairman


Mr. Sajjad Rasool Member

432019ANNUAL REPORT


STATEMENT OF COMPLIANCE

17. The Board has formed the following Board Committees:

18. The Board has formed an Audit Committee. It comprises of three members, of whom three are non-executive Directors. The Chairman of the Committee is a non executive director. The composition of audit committee is as follows:

19. The meetings of the Committees, except Ethics, Human Resource and Remuneration Committee, were held at least once every quarter prior to approval of interim and final results of the Company and as required by the Code of Corporate Governance for insurers, 2016. The terms of references of the Committees have been formed and advised to the Committees for compliance.

20. The Board has outsourced the internal audit function to Ahsan and Ahsan, Chartered Accountants who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Company and their representatives are involved in the internal audit function on a regular basis.

Claims Settlement Committee:



Mr. Hafiz Khuram Shahzad Member

Mr. Imran Sohail Member

Reinsurance and co-insurance Committee:




Mr. Umer Haroon Member

Mr. Muhammad Haris Member

Risk Management & Compliance Committee:





Ethics, Human Resource and Remuneration Committee:




Mr. Farrukh Aleem Member

Investment Committee :




Mr. Farrukh Aleem Member


Nomination Committee:





Audit Committee:






21. The Chief Executive Officer, Chief Financial Officer, Compliance Officer and the Head of Internal Audit possess such qualification and experience as is required under the Code of Corporate Governance for insurers, 2016. Moreover, the persons heading the underwriting, claim, reinsurance, risk management and grievance function possess qualification and experience of direct relevance to their respective functions, as required under section 12 of the Insurance Ordinance, 2000 (Ordinance No. XXXIX of 2000):

22. The statutory auditors of the Company have been appointed from the panel of auditors approved by the Commission in terms of section 48 of the Insurance Ordinance, 2000 (Ordinance No. XXXIX of 2000). The statutory auditors have confirmed that they have been given a satisfactory rating under the Quality Control Review programme of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold shares of the insurer and that the firm and all its partners are in compliance with the International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants of Pakistan.

23. The statutory auditors or the persons associated with them have not been appointed to provide other services and the auditors have confirmed that they have observed IFAC guidelines in this regard.

24. The Board ensures that the appointed Actuary complies with the requirement set out for him in the Code of Corporate Governance for Insurers, 2016.

25. The Board ensures that the investment policy of the insurer has been drawn up in accordance with the provisions of the Code of Corporate Governance for insurers, 2016.

26. The Board ensures that the risk management system of the insurer is in place as per the requirements of the Code of Corporate Governance for insurers, 2016.

27. The Company has set up a risk management function which carries out its tasks as covered under the Code of Corporate Governance for insurers, 2016.

28. The Board ensures that as part of this risk management system, the Company gets itself rated from JCR-VIS which is being used by its risk management function and the respective Committee as a risk monitoring tool. The rating assigned by the said rating agency is AA with stable outlook on December 04, 2019.

29. The Board has set up a grievance function in compliance with the requirement of the Code of Corporate Governance for Insurers, 2016.

30. The Company has not obtained any exemption(s) from the Securities and Exchange Commission of Pakistan in respect of the requirement of the Code.

31. We confirm that all other material principles contained in the Code have been complied with.

On behalf of Board of Directors

(FARRUKH ALEEM) CEO

Lahore March 09, 2020

Name of the Person Designation

Mr.Farrukh Aleem Chief Executive Officer

Mr. Hafiz Khuram Shahzad

Chief Financial Officer

Mr. Muhammad Asim Rauf Khan

Compliance Officer

Mr. Khalid Mahmood Chohan

Company Secretary

Ahsan and Ahsan, Chartered Accountants

Internal Auditors

Mr. Syed Mehmood Ul Hassan

Head of Window Takaful

Mr. Sajjad Rasool Head of Underwriting

Mr. Imran Sohail Head of Claims

Mr. Umer Haroon Head of Reinsurance

Mr. Muhammad Haris Head of Risk Function

Mr. Shafiq-ur-Rehman Head of Grievance Function

DIRECTORMAHMOOD AKHTAR


STATEMENT OF COMPLIANCE

452019ANNUAL REPORT

STATEMENT UNDER SECTION 46(6) OF THE INSURANCE ORDINANCE, 2000

The incharge of the management of the business is Farrukh Aleem, Chief Executive Officer and the report on the affairs of business during the year 2019 signed by him , and approved by the Board of Directors is part of the Annual Report 2019 under the title of “Directors’ Report to Members” and

a. In our opinion the annual statutory accounts of Security General Insurance Company Limited set out in the forms attached to the statement have been drawn up in accordance with the Insurance Ordinance, 2000 (Ordinance) and any rules made thereunder,

b. Security General Insurance Company Limited has at all times in the year complied with the provisions of the Ordinance and the rules made thereunder relating to paid-up capital, solvency and re-insurance arrangements; and

c. As at the date of the statement, the Security General Insurance Company Limited continues to be in compliance with the provisions of the Ordinance and the rules made thereunder relating to paid-up capital, solvency and re-insurance arrangements.

Lahore. Dated: March 09, 2020

Chief Executive Officer Director ChairmanDirector

472019ANNUAL REPORT

Financial StatementsFOR THE YEAR ENDED DECEMBER 31, 2019


INDEPENDENT AUDITOR’S REPORT

To the members of Security General Insurance Company Limited

Report on the Audit of the Financial Statements

Opinion

We have audited the annexed financial statements of Security General Insurance Company Limited (the Company), which comprise the statement of financial position as at December 31, 2019, and the profit and loss account, and the statement of comprehensive income, the statement of changes in equity and the cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position, the profit and loss account, the statement of comprehensive income, the statement of changes in equity and the cash flow statement together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Company's affairs as at December 31, 2019 and of the profit, total comprehensive income, the changes in equity and its cash flows for the year then ended. Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information Other than the Financial Statements and Auditor’s Report Thereon

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000 and, Companies Act, 2017 (XIX of 2017), and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Board of directors are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether

due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on

492019ANNUAL REPORT

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000 and, Companies Act, 2017 (XIX of 2017), and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Board of directors are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether



procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.



accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on


the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including

the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Company as required by the Insurance

Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017),; b) the statement of financial position, the profit and loss account, the statement of

comprehensive income, the statement of changes in equity and the statement of cash flows together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000, the Companies Act, 2017 (XIX of 2017), and are in agreement with the books of account;

c) investments made, expenditure incurred and guarantees extended during the year were for

the purpose of the Company’s business; and d) no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of

1980). The engagement partner on the audit resulting in this independent auditor’s report is Amer Raza Mir.


512019ANNUAL REPORT

STATEMENT OF FINANCIAL POSITIONas at December 31, 2019

Note 2019 2018---------Rupees in thousand---------

ASSETS

Property and equipment 6 145,332 120,118 Intangible assets under development 7 4,044 4,044 Investment property 8 464,176 457,948 Investments Equity securities 9 16,184,138 13,940,348 Debt securities 10 69,673 74,607 Loans and other receivables 11 34,968 16,751 Insurance/reinsurance receivables 12 2,289,531 2,176,640 Reinsurance recoveries against outstanding claims 25 1,006,088 814,128 Salvage recoveries accrued 5,120 3,599 Deferred commission expense 26 110,933 94,261 Prepayments 13 1,151,576 1,006,289 Cash and bank 14 268,560 233,108

21,734,139 18,941,841 Total assets of window takaful operations - Operator’s fund 15 86,187 54,842

TOTAL ASSETS 21,820,326 18,996,683

EQUITY AND LIABILITIESCAPITAL AND RESERVES ATTRIBUTABLE TO COMPANY’S EQUITY HOLDERS

Ordinary share capital 16 680,625 680,625 Reserves 17 3,742,464 3,313,257 Un-appropriated profit 10,494,554 9,876,532 TOTAL EQUITY 14,917,643 13,870,414

LIABILITIES UNDERWRITING PROVISIONS Outstanding claims including IBNR 25 1,176,065 964,731 Unearned premium reserves 24 1,558,246 1,296,132 Unearned reinsurance commission 26 92,208 80,758 Retirement benefit obligations 18 5,831 5,184 Deferred taxation 19 1,507,567 1,082,760 Borrowings 20 193,228 194,876 Insurance/reinsurance payables 21 1,730,249 1,068,131 Other creditors and accruals 22 414,429 247,650 Taxation - provision less payments 187,826 177,195 TOTAL LIABILITIES 6,865,649 5,117,417

Total liabilities of window takaful operations - Operator's Fund 15 37,034 8,852

TOTAL EQUITY AND LIABILITIES 21,820,326 18,996,683

CONTINGENCIES AND COMMITMENTS 23

The annexed notes 1 to 42 form an integral part of these financial statements.



Note 2019 2018Rupees in thousand

Net insurance premium 24 695,996 599,589

Net insurance claims 25 (110,472) (83,195)Net commission and other acquisition costs 26 (12,927) (7,469)

Insurance claims and acquisition expenses (123,399) (90,664)Management expenses 27 (270,190) (214,628)UNDERWRITING RESULTS 302,407 294,297

Investment income 28 1,037,215 995,081 Other income 29 48,439 27,637 Other expenses 30 (12,507) (11,917)RESULTS OF OPERATING ACTIVITIES 1,375,554 1,305,098

Finance costs 31 (24,754) (9,253)Profit / (loss) from window takaful operations- Operator’s Fund 15 3,163 (4,010)PROFIT BEFORE TAX 1,353,963 1,291,835 Income tax expense 32 (394,580) (438,007)PROFIT AFTER TAX 959,383 853,828

Earnings after tax per share - Rupees 33 14.10 12.54


PROFIT AND LOSS ACCOUNT


For the year ended December 31, 2019

532019ANNUAL REPORT

2019 2018Rupees in thousand

(Re-stated)PROFIT AFTER TAX FOR THE YEAR 959,383 853,828

OTHER COMPREHENSIVE INCOME FOR THE YEAR: Items that may be reclassified subsequently to profit and loss accountUnrealized gain /(loss)loss on available-for-sale investments - net of tax 429,207 (2,036,260)Items that will not be subsequently reclassified to profit and loss account:Remeasurement of defined benefit obligations - net of tax (1,049) (1,109)

TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE YEAR 1,387,541 (1,183,541)


STATEMENT OF COMPREHENSIVE INCOMEFor the year ended December 31, 2019


Attributable to equity holders of the CompanyCapital Reserve Revenue Reserve

Share Capital

Fair value reserve

General Reserve

Un-appropriated

profit

Total capital and

reserves--------------------Rupees in thousand--------------------

BALANCE AS ON JANUARY 01, 2018 680,625 5,347,517 2,000 9,364,125 15,394,267 Profit after taxation for the year ended December 31, 2018 - - - 853,828 853,828 Other comprehensive loss for the year endedDecember 31, 2018 - (2,036,260) - (1,109) (2,037,369)Total comprehensive (loss)/income for the year ended December 31, 2018 - (2,036,260) - 852,719 (1,183,541)

Transactions with owners recognised directly in equityFinal dividend for the year ended December 31, 2017 at the rate of Rs 2.5 (25%) per share - - - (170,156) (170,156)Interim dividend for half year ended June 30, 2018 at the rate of Rs 2.5 (25%) per share - - - (170,156) (170,156)Balance as on December 31, 2018 680,625 3,311,257 2,000 9,876,532 13,870,414

Profit after taxation for the year ended December 31, 2019 - - - 959,393 959,393 Other comprehensive loss for the year ended December 31, 2019 - 429,207 - (1,049) 428,158 Total comprehensive income for the year ended December 31, 2019 - 429,207 - 958,334 1,387,541

TRANSACTIONS WITH OWNERS, RECOGNISED DIRECTLY IN EQUITYFinal dividend for the year ended December 31, 2018 at the rate of Rs 2.5 (25%) per share - - - (170,156) (170,156)Interim dividend for half year ended June 30, 2019 at the rate of Rs 2.5 (25%) per share - - - (170,156) (170,156)BALANCE AS ON DECEMBER 31, 2019 680,625 3,740,464 2,000 10,494,554 14,917,643


STATEMENT OF CHANGES IN EQUITY


For the year ended December 31, 2019



OPERATING CASH FLOWSa) UNDERWRITING ACTIVITIES

Insurance premiums received 3,059,231 2,051,269 Reinsurance premiums paid (1,713,052) (2,030,035)Claims paid (439,489) (471,320)Reinsurance and other recoveries received 348,247 395,450 Commissions paid (173,787) (175,893)Commissions received 221,791 176,697 Management expenses paid (213,702) (234,680)NET CASH INFLOW / (OUTFLOW) FROM UNDERWRITING ACTIVITIES 1,089,239 (288,512)

OTHER OPERATING ACTIVITIESIncome tax paid (383,187) (387,774)Other operating payments - - Other operating receipts 50,711 33,188 NET CASH OUT FLOW FROM OTHER OPERATING ACTIVITIES (332,476) (354,586)TOTAL CASH INFLOW / (OUTFLOW) FROM ALL OPERATING ACTIVITIES 756,763 (643,098)

INVESTMENT ACTIVITIESProfit / return received 50,247 24,421 Dividends received 1,028,471 984,158 Payments for investments / investment properties (1,590,539) (1,330,424)Proceeds from investments 205,484 666,749 Fixed capital expenditure (58,452) (28,179)Proceeds from sale of operating assets 3,419 5,007 TOTAL CASH (OUT FLOW) / INFLOW FROM INVESTING ACTIVITIES (361,370) 321,732

FINANCING ACTIVITIESDividends paid (340,312) (340,313)Interest paid (17,981) (8,985)TOTAL CASH OUTFLOW FROM FINANCING ACTIVITIES (358,293) (349,298)

NET CASH INFLOW / (OUTFLOW) FROM ALL ACTIVITIES 37,100 (670,664)CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 38,232 644,546 Investments classified to cash and cash equivalent - 64,350CASH AND CASH EQUIVALENTS AT END OF THE YEAR 14.3 75,332 38,232

CASH FLOW STATEMENTFor the year ended December 31, 2019

552019ANNUAL REPORT


Reconciliation to profit and loss account

Operating cash flows 756,763 (643,098)Depreciation expense (23,036) (16,631)Finance costs (26,612) (9,253)(Loss)/Profit on disposal of operating assets (313) 371Profit on disposal of investments 484 5,464 Dividend income 1,028,353 984,316 Other investment income 8,378 5,301 Other income 48,752 27,266 Increase in assets other than cash 464,030 760,228 Increase in liabilities other than borrowings (1,043,687) (3,148)Increase in provision for unearned premium (262,114) (255,074)Increase in commission income unearned (11,450) (9,633)Increase in commission expense deferred 16,672 11,729 Profit/(loss) from window takaful operations for the year - Operator's Fund 3,163 (4,010)Profit after taxation 959,383 853,828



CASH FLOW STATEMENTFor the year ended December 31, 2019


572019ANNUAL REPORT

1 LEGAL STATUS AND NATURE OF BUSINESS

Security General Insurance Company Limited (the ‘Company’) is a general non-life insurance company which was incorporated as an unquoted public limited company, in Pakistan on May 13, 1996 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). The Company has 8 branches in Pakistan. The Company is engaged in providing general insurance services in spheres of fire, marine, motor and miscellaneous. The registered office and the principal place of business is situated at SGI House, 18-C, E1, Gulberg III, Lahore.

The Company was granted authorization during the year on May 07, 2018 under Rule 6 of the Takaful Rules, 2012 to undertake Takaful Window Operations in respect of general takaful products by Securities and Exchange Commission of Pakistan (‘SECP’) and subsequently the Company commenced Window Takaful Operations.

2 BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE

2.1 STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards as applicable in Pakistan comprise of:

- - International Financial Reporting Standards (IFRS) issued by International Accounting Standard Board (IASB) as are notified under the Companies Act, 2017; and

- Provisions of and directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017 and the Takaful Rules, 2012.

In case requirements differ, the provisions or the directives of the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017 and the Takaful Rules, 2012, shall prevail.

2.1.1 In terms of the requirements of the Takaful Rules, 2012, read with SECP Circular 25 of 2015 dated July 9, 2015, the assets, liabilities and profit and loss of the Operator Fund of the General Takaful operations of the Company have been presented as a single line item in the statement of financial position and the statement of comprehensive income of the Company respectively.

2.1.2 A separate set of financial statements of the General Takaful operations has been annexed to these financial statements as per the requirements of the Takaful Rules, 2012.

2.2 Basis of preparation

These financial statements have been presented on the format of the financial statements issued by SECP through Insurance Rules, 2017 vide S.R.O 89(1)/2019 dated February 09, 2018 . All transactions reflected in the financial statements are on accrual basis except those reflected in cash flow statement.

NOTES TO THE FINANCIAL STATEMENTSFor The Year Ended December 31, 2019


2.3 Basis of measurement

These financial statements have been prepared under the historical cost convention except for certain staff retirement benefits which are carried at present value of the defined benefit obligation less fair value of plan assets and certain investments which are carried at market value.

2.4 Functional and presentation currency

These financial statements are presented in Pakistan Rupees which is the Company’s functional and presentation currency and all figures in these financial statements have been rounded off to the nearest thousand rupees, except otherwise stated.

2.5 Standards, interpretations and amendments to published accounting and reporting standards that are effective in the current year

a) IFRS 9 ‘Financial Instruments and IFRS 4 Insurance Contracts

This standard was notified by the Securities and Exchange Commission of Pakistan (SECP) to be effective from annual periods ending on or after June 30, 2019. This standard replaces the guidance in International Accounting Standard (IAS) 39, ‘Financial Instruments: Recognition and Measurement’. Key changes in the new standard include requirements on the classification, measurement and derecognition of financial assets and liabilities. The standard also contains new requirements for hedge accounting and replaces the current incurred loss impairment model with an expected credit loss model.

During the year the Company has taken advantage of an election under IFRS 4 that permits an insurer which meets certain conditions to temporarily be exempt from adopting IFRS 9 ‘Financial Instruments’, that would have otherwise become effective from January 1, 2019, until January 1, 2022. Disclosures required under the temporarily exemption have been made by the Company and detailed in note 4 to these financial statements.

b) IFRS 16, Leases

Effective January 1, 2019, the Company has adopted IFRS 16, “Leases” which replaces existing guidance on accounting for leases, including IAS 17 ‘Leases’, IFRIC 4 ‘Determining whether an arrangement contains a Lease’, SIC-15 ‘Operating Leases- Incentive’ and SIC-27 ‘Evaluating the substance of transactions involving the legal form of a Lease’. IFRS 16 introduces a single, lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right-of-use of the underlying asset and a lease liability representing its obligations to make future lease payments. An exemption exists for short term and low value leases. The accounting for lessors will not significantly change i.e. lessors continue to classify leases as finance or operating leases. The accounting policies relating to company’s right of use asset and lease liability are disclosed in note 3.1.


592019ANNUAL REPORT

The Company has applied IFRS 16 using the simplified approach for transition. This approach requires entities to recognize the cumulative effect of applying the standard as an adjustment to the opening balance of un-appropriated profit at the date of initial application. Comparative prior periods would not be adjusted. The cumulative effect of initially applying this standard as an adjustment to the opening balance of un-appropriated profit in the period of initial application does not have any impact since the Company has applied the practical expedient to account for leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases.

The Company has multiple lease agreements relating to buildings occupied at different locations across the country. However, these lease agreements are considered as short-term leases since the lease term is less than 12 months. Consequently, the changes laid down by the standard do not have any material impact on the financial statements of the Company.

In addition to the above, there are certain new and amended standards and interpretations that are mandatory for the Company’s accounting periods beginning on or after January 1, 2019 but are considered not to be relevant or to have any significant effect on the Company’s operations and are therefore not detailed in these financial statements.

2.6 Standards, interpretations and amendments to accounting and reporting standards that are not yet effective

There are certain new and amended standards and interpretations that are mandatory for the Company’s accounting periods beginning on or after January 1, 2020 but are considered not to be relevant or do not have any significant effect on the Company’s operations although they may affect the accounting for future transactions and events upon initial application and are, therefore, not disclosed in these financial statements, except for the following:

a) IFRS 17 - Insurance contracts

This standard has been notified by the IASB to be effective for annual periods beginning on or after January 1, 2022 and yet to be notified by the SECP. The standard provides a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 that was issued in 2005. IFRS 17 applies to all types of insurance contracts as well as to certain guarantees and financial instruments with discretionary participation features. In contrast to the requirements in IFRS 4, which are largely based on grand fathering of previous local accounting policies, IFRS 17 provides a comprehensive and consistent approach to insurance contracts. The core of IFRS 17 is the general model, supplemented by a specific adaption for contracts with direct participation features (the variable fee approach) and a simplified approach (the premium allocation approach) mainly for short-duration contracts.



The main features of the new accounting model for insurance contracts include the measurement of the present value of future cash flows incorporating an explicit risk adjustment, remeasured every reporting period (the fulfilment cash flows); a contractual service margin equal and opposite to any day one gain in the fulfilment cash flows of a group of contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period (coverage period); the presentation of insurance revenue and insurance service expenses in the statement of comprehensive income based on the concept of insurance services provided during the period; and extensive disclosures to provide information on the recognized amounts from insurance contracts and the nature and extent of risks arising from these contracts.

The management is in the process of assessing the impact of changes laid down by the standard on its financial statements.

In addition to the above, there are certain new standards, amendments and interpretations to accounting and reporting standards that are mandatory for the Company’s accounting periods beginning on or after January 1, 2020 but are considered not to be relevant or to have any significant effect on the Company’s operations and are, therefore, not detailed in these financial statements.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in preparation of these financial statements are set out below. Accounting policies relating to Window Takaful Operations are disclosed in a separate financial statements of Window Takaful Operations which have been annexed to these financial statements. These accounting policies have been consistently applied to all the years presented, expect for changes in accounting policies, as mentioned below in note 3.1 to these financial statements.

3.1 Leases

3.1.1 Lessee Accounting

At inception of a contract, the company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Leases having lease term of less than 12 months are accounted for as short-term leases and the expense charged to profit or loss on straight line basis over the lease term.

From January 1, 2019, lessee at the commencement of lease term shall recognize right of use asset and a lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the company’s incremental borrowing rate.


a) Other standards, amendments and interpretations Effective date (period beginning on or after)

IAS 1, Presentation of Financial Statements (Amendments) January 1, 2020IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (Amendments)

January 1, 2020

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Lease payments include fixed payments, variable lease payments that are based on an index or a rate, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option, less any lease incentives receivable. The extension and termination options are incorporated in determination of lease term only when the company is reasonably certain to exercise these options.

The lease liability is subsequently measured at amortized cost using the effective interest rate method. It is remeasured when there is a change in future lease payments arising from a change in fixed lease payments or an index or rate, change in the company’s estimate of the amount expected to be payable under a residual value guarantee, or if the company changes its assessment of whether it will exercise a purchase, extension or termination option. The corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in the statement of profit or loss if the carrying amount of right-of-use asset has been reduced to zero.

The lease liability is subsequently measured at amortized cost using the effective interest rate method. It is remeasured when there is a change in future lease payments arising from a change in fixed lease payments or an index or rate, change in the company’s estimate of the amount expected to be payable under a residual value guarantee, or if the company changes its assessment of whether it will exercise a purchase, extension or termination option. The corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in the statement of profit or loss if the carrying amount of right-of-use asset has been reduced to zero.

3.1.2 Lessor Accounting

Lease income from operating leases where the Company is a lessor is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognized as expense over the lease term on the same basis as lease income. The respective leased assets are included in the statement of financial position based on their nature.

3.2 Property and equipment

3.2.1 Operating assets

Operating assets except freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss. Cost of operating assets consists of historical cost and directly attributable cost of bringing the assets to their present location and condition. Depreciation on all operating assets is charged to profit and loss account on reducing balance method at the rates given in note 6.1 to the financial statements so as to write off the cost of operating asset over its estimated useful life. Depreciation on addition to operating assets is charged from the month in which an asset is acquired or capitalized, while no depreciation is charged in the month in which the asset is derecognized or retired from active use. Management judgement and estimates are involved in determining the useful lives of assets that best reflects the expected pattern of consumption of the future economic benefits embodied in the asset by the Company.



Maintenance and normal repairs are charged to profit and loss account as and when incurred whereas major renewals and improvements are capitalized and the assets so replaced, if any, are retired. Gain and loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognized as an income or expense, in the profit and loss account.

The operating assets’ residual value and useful lives are reviewed, at each financial year end, and adjusted if impact on depreciation is significant. The Company’s estimate of the residual value of its operating assets as at December 31, 2019 has not required any adjustment as its impact is considered insignificant.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the items will flow to the company and the cost of the item can be measured reliably.

The carrying values of operating assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount.

Capital work-in-progress is stated at cost less any identified impairment loss. All expenditure including borrowing costs connected with specific assets incurred during installation and construction period are carried under capital work-in-progress. These are transferred to operating assets as and when these are available for use.

3.3 Intangible assets

Software development cost are only capitalized to the extent that future economic benefits are expected to flow to the entity. Intangible assets with finite useful lives are stated at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets with indefinite useful lives are stated at cost less impairment losses, if any.

Capital work-in-progress is stated at cost less any identified impairment loss. All expenditure including borrowing costs connected with specific assets incurred during installation and construction period are carried under capital work-in-progress. These are transferred to operating assets as and when these are available for use.

3.4 Investment property

Property not held for own use or for sale in the ordinary course of business is classified as investment property. The investment property of the Company comprise of land and buildings. The investment property, except freehold land, are stated at cost less accumulated depreciation and any identified impairment losses. Freehold land is stated at cost less any identified impairment loss.


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Depreciation on all investment property is charged to the profit and loss account, by applying the reducing balance method at the rates given in note 7 to write off the cost of investment property over its expected useful life. Depreciation on addition to operating assets is charged from the month in which an asset is acquired or capitalized, whereas no depreciation is charged in the month of disposal.

The assets’ residual values and useful lives are reviewed, at each financial year end, and adjusted if impact on depreciation is significant. The Company’s estimate of the residual values and useful lives of its investment property as at December 31, 2018 has not required any adjustment as its impact is considered insignificant.

The Company assesses at each statement of financial position date whether there is any indication that investment property may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying amounts exceed the respective recoverable amount, assets are written down to their recoverable amount and the resulting impairment loss is recognized in profit and loss account. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Where an impairment loss is recognized, the depreciation charge is adjusted in the future periods to allocate the asset’s revised carrying amount over its estimated useful life.

The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognized as an income or expense in the profit and loss account.

3.5 Insurance contracts

Insurance contracts are those contracts where the Company has accepted significant insurance risk from the policy holders by agreeing to compensate the policy-holders on the occurrence of a specified uncertain future event i.e. insured event, that adversely affects the policy holders. Significant insurance risk is defined as the possibility of having to pay benefits on the occurrence of an insured event.

The Company underwrites non-life insurance contracts only under four main classes of business i.e. fire and property damage, marine aviation and transport, motor and others including miscellaneous and are issued to corporate and individual clients. The tenure of these insurance contracts depend upon terms of the policies written and vary accordingly. Nonetheless, once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and liabilities are extinguished or expired.



a) Fire and property damage insurance:

i) Insurance risks and events insured

Fire and property damage insurance contracts generally cover the policy holders against damages caused by one or more of the following: fire, earthquake, riot and strike, explosion, atmospheric disturbance, flood, burglary, etc. according to the terms and conditions of the policy. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover).

ii) Revenue recognition policy

Premium income is recognized over the period of insurance from the date of the issue of the policy / cover note to which it relates, to its expiry. For direct insurance business, premium is recognized evenly over the period of the policy and for proportional reinsurance business, evenly over the period of underlying insurance policies. Where the pattern of incidence of risk varies over the period of the policy, premium is recognized as revenue in accordance with the pattern of the incidence of risk. Premiums for policies receivable in installments are recognized as receivable at the inception of the policy and is recognized as income over the period of the policy. The gross premium underwritten is adjusted against the unearned premium reserves / liabilities existing at each reporting date to determine the net premium underwritten during the year.

Since majority of policies are for one year, the Company maintains its provision for unearned premium by applying the 1/24th method as stipulated in regulation 24(4)(ii) of the Insurance Accounting Regulations, 2017, except in rare circumstances where the coverage period materially differs, the same is recognised in accordance with the ratio of unexpired period of policy and the total period.

In addition to direct insurance, at times the Company also participates in risks under coinsurance from other companies and also accepts risks through reinsurance inward by way of facultative acceptances on case to case basis provided such risks are within the underwriting policies of the Company. Premium recognized against coinsurance policies is limited to the share of the Company only. The nature of the risks undertaken under such arrangement is consistent with the risks in each class of business as stated above.

Premium income includes administrative surcharge that represents documentation and other charges recovered by the Company from insurance contract holder in respect of policies issued, at the rate of 5% of the gross premium written restricted to a maximum of Rs. 2,000 per policy.

iii) Claims recognition

Claim liability against losses incurred are recognized at the time of the incident giving rise to the claim, except otherwise expressly indicated in the insurance contract. A claim generally includes the loss resulting from the incident, along with claim handling costs that are directly related to the processing / settling the claims, net of any salvage recoveries and any adjustments to claims outstanding from previous years. In addition to reported claims, the liability also includes provisions made under IBNR and expected claims settlement costs.


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b) Marine, aviation and transport insurance:


Marine, aviation and transport insurance contracts generally provide cover against one or more of the following: cargo risk, war risk and damages occurring during transit between the points of origin and final destination according to the terms and conditions of the policy.


Premium income is recognized over the period of insurance from the date of the issue of the policy / cover note to which it relates, to its expiry. For direct business, evenly over the period of the policy and for proportional reinsurance business, evenly over the period of underlying insurance policies. Where the pattern of incidence of risk varies over the period of the policy, premium is recognized as revenue in accordance with the pattern of the incidence of risk. Premiums for policies receivable in installments are recognized as receivable at the inception of the policy and is recognized as income over the period of the policy. The gross premium underwritten is adjusted against the unearned premium reserves / liabilities existing at each reporting date to determine the net premium underwritten during the year.

Since majority of policies are for three months period, premium written during last three months of the financial year, is taken to the provision for unearned premium at the reporting date by using 1/6th method.




Claim against losses incurred are recognized at the time of the incident giving rise to the claim, except otherwise expressly indicated in the insurance contract. A claim generally includes the loss resulting from the incident, along with claim handling costs that are directly related to the processing / settling the claims, net of any salvage recoveries and any adjustments to claims outstanding from previous years. In addition to reported claims, the liability also includes provisions made under IBNR and expected claims settlement costs.



c) Motor insurance:


Motor insurance contracts provide indemnity against one or more of the following: total or partial loss of vehicle, third party loss and other comprehensive car coverage, etc. according to the terms and conditions of the policy.



Since majority of policies are for one year, the Company maintains its provision for unearned premium by applying the 1/24th method as stipulated in regulation 24(4)(ii) of the Insurance Accounting Regulations, 2017.






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d) Miscellaneous insurance:


All other insurances like crop, cash in hand, cash in transit, personal accident, infidelity, public liabilities, livestock, travel, bankers and other financial institutions packages, product liabilities, professional indemnity, mobilization and performance bonds, workers compensation etc. are included under miscellaneous insurance cover.







Detailed accounting policies for recording and measurement of reinsurance contracts held, receivables / payables related to insurance contracts and provision for outstanding claims including Incurred But Not Reported (IBNR) are mentioned in note 3.9, 3.10 and 3.20, respectively.



In addition to direct insurance, the Company also participates in risks under co-insurance contracts from other companies and also accepts risks through re-insurance inward by way of facultative acceptance on case to case basis provided such risks are within the underwriting policies of the Company. The nature of risk undertaken in these contracts is consistent with those stated above, in direct and other lead insurance contracts.

3.6 Deferred commission expense / acquisition cost

Deferred commission expense represents the portion of commission expense relating to the unexpired period of the insurance coverage at the reporting date. The same is amortized systematically, through the profit and loss account, over the reporting periods over which the related premium revenue is recognized. Accordingly, deferred commission expense is also effected by the judgement and estimates involved in the determination of premium revenue.

The Company maintains its provision for deferred commission expense by applying the 1/24th method on fire and property damage, motor and miscellaneous as stipulated in the Insurance Accounting Regulation, 2017 for non life insurance companies. In case of marine, commission expense relating to last three months is taken as deferred commission expense, consistent with 1/6th method above.

3.7 Unearned premium reserves

Provision for unearned premium represents the portion of premium written relating to the unexpired period of insurance coverage at the reporting date. The method selected by management involves judgement and estimates regarding the expected pattern of incidence of risk in relation to a particular type of policy. Majority of the insurance contracts entered into by the Company are for a period of 12 months. Policy for recognition of premium revenue is disclosed in note 3.13 to these financial statements.

The Company maintains its provision for unearned premium by applying the 1/24th method on fire and property damage, motor and miscellaneous as stipulated in regulation 24(4)(ii) of the Insurance Accounting Regulations, 2017. However, in case of marine, premium written during last three months is taken as provision for unearned premium, consistent with 1/6th method above.

3.8 Premium deficiency reserve (liability adequacy test)

In order to comply with the requirements of section 34(2)(d) of the Insurance Ordinance, 2000, a premium deficiency reserve is maintained for each operating segment, where the unearned premium liability for any class of business is not adequate to meet the expected future liability, after re-insurance, for claims and other expenses, including reinsurance expense, commissions, and other underwriting expenses, expected to be incurred after the reporting date in respect of the policies in force at the reporting date, in that operating segment. The movement in the premium deficiency reserve is recorded as an expense / income as part of the underwriting results for the year.


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An estimate of loss ratios for the expired period is carried out, at each operating segment level, keeping in view historical claim development and experience during the expired period of the contracts. Where ratios are adverse, an assessment is made to determine if it is due to one off claim that are not expected to recur during the remaining period of the policies and expectations of future events that are believed to be reasonable. If determined to be inadequate, a deficiency in premium is recognized in the current reporting period. The loss ratios for the current and prior year are as follows:

Loss ratios based on current estimated of known claims

2019 2018

Fire and property damage 7% 11% Marine, aviation and transport 25% 28% Motor 36% 36% Miscellaneous 45% 45%

The management considers that the unearned premium reserve for all classes of business as at the year end is adequate to meet the expected future liability after reinsurance claims and other expenses, expected to be incurred after the statement of financial position date in respect of policies in those classes of business in force at the statement of financial position date. Hence, no reserve for the same has been made in these financial statements.

3.9 Reinsurance contracts held

The Company enters into reinsurance contracts with reinsurance companies by arranging treaty reinsurance, whereby certain agreed proportion of risks are shared with the participating companies, hence higher underwriting capacity with larger spread becomes available. Depending upon the nature and / or size of the risk at times reinsurance of excess of capacity is also placed on case to case basis under facultative reinsurance arrangement. The Company also accepts facultative reinsurance from other local insurance companies provided the risk meets the underwriting requirements of the Company.

The risks undertaken by the Company under these contracts for each operating segment are stated in note 3.11 to the financial statements.

The benefits to which the Company is entitled under reinsurance contracts held are recognized as reinsurance assets. These assets include reinsurance receivables as well as receivables that are dependent on the expected claims and benefits arising under the related reinsured contracts.

Reinsurance liabilities primarily include premium payable and commission payable (in case of facultative acceptance). Reinsurance assets and liabilities are measured consistently with the terms of the underlying reinsurance contracts.



Reinsurance assets and liabilities are derecognized when the contractual rights are extinguished or expired. Furthermore, reinsurance assets are not offset against related insurance liabilities.

Assets, liabilities and income and expense arising from ceded reinsurance contracts are presented separately from the assets, liabilities, income and expense from the related insurance contracts because the reinsurance arrangements do not relieve the Company from its direct obligation to its policyholders.

Premium ceded to reinsurers is recognized as follows:

a) for reinsurance contracts operating on a proportional basis, a liability to the reinsurer is recognized on attachment of the underlying policies reinsured, while an asset is recognized for the unexpired period of reinsurance coverage at the reporting date as prepaid reinsurance premium ceded and the same is expensed over the period of underlying policies; and

b) for reinsurance contracts operating on a non-proportional basis, a liability is recognized on inception of the reinsurance contract, while an asset is recognized for the unexpired period of reinsurance coverage at the reporting date as prepaid reinsurance premium ceded and the same is expensed over the period of indemnity.

3.10 Receivables and payables related to insurance contracts

Insurance/reinsurance receivables and payables are recognized when due and carried at cost less provision for impairment. Cost is the fair value of the consideration to be received/paid in the future for services rendered/received. These include amounts due to and from agents, brokers, insurance contract holders and other insurance companies.

An assessment is made at each reporting date to determine whether there is objective evidence from external as well as internal sources of information that a financial asset or group of assets may be impaired i.e. recoverable amount at the reporting date is less than the earning amount of the asset. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognized, in the profit and loss account, for the difference between the recoverable amount and the carrying amount. Provisions for impairment are reviewed at each reporting date and adjusted to reflect the current best estimates. Changes in the provisions are recognized as income or expense, in the profit and loss account for the period.

3.11 Segment reporting

The Company accounts for segment reporting based on the guidelines of the Insurance Accounting Regulations, 2017 and the operating segments as specified under the Insurance Ordinance, 2000 and the Insurance Rules, 2017, as the primary reporting format based on the Company’s practice of internal reporting to the management on the same basis. The Company has determined its primary segments based on insurance risks covered under four types of insurance contracts as stated in note 3.5, to these financial statements.


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Assets, liabilities and capital expenditures that are directly attributable to segments have been assigned to them while the carrying amount of certain assets used jointly by two or more segments have been allocated to segments on a reasonable basis. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities.

As the operations of the Company are predominantly carried out in Pakistan, information relating to geographical segment is not considered relevant.

3.12 Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of cash flow statement, cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments along with any short term finance borrowing arrangement carried out with banks.

3.13 Revenue recognition

a) Premium income earned

Premium income under an insurance contract is recognized over the period of insurance from the date of the issue of the policy/cover note to which it relates to its expiry as detailed in note 3.7 to the financial statements.

b) Commission income

Commission income from reinsurers is recognized at the time of issuance of the underlying insurance contract by the Company. This income is deferred and brought to account as revenue in accordance with the pattern of recognition of the reinsurance premium to which it relates. Profit commission, if any, which the Company may be entitled to under the terms of reinsurance, is recognized on accrual basis.

c) Investment income

Following are recognized as investment income:

- Income on held to maturity investments is recognized on a time proportion basis taking into account the effective yield on investments.

- Gain / loss on sale of investments is taken to the profit and loss account in the year of sale as per settlement date.



d) Dividend income and bonus shares

Dividend income and entitlement of bonus shares are recognized when the right to receive such dividends and bonus shares is established.

e) Rent and other income

Rental and other income is recognized on accrual basis.

f) Administrative surcharge

Administrative surcharge includes documentation and other charges recovered by the Company from insurance contract holders in respect of insurance policies issued, at a rate of 5% of the gross premium, restricted to a maximum of Rs 2,000 in case of all insurance contracts. Administrative surcharge is recognized as revenue at the time of issuance of policy.

For the purpose of these financial statements, administrative surcharge is included in gross premiums written during the year.

3.14 Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

3.15 Taxation

Income tax comprises current and deferred tax. Income tax is recognized in the profit and loss account except to the extent that relates to items recognized directly in equity or other comprehensive income, in which case it is recognized directly in equity or other comprehensive income.

Current tax

Provision for current tax is based on the taxable income for the year determined in accordance with the prevailing laws for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year, if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previous years arising from assessments framed during the current year for such years.


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Deferred tax

Deferred tax is accounted for using the “balance sheet liability method’ in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to other comprehensive income or equity in which case it is included in other comprehensive income or equity, as applicable.

3.16 Staff retirement benefits

The main features of the schemes operated by the Company for its employees are as follows:

3.16.1 Defined contribution plan

There is an approved contributory provident fund for all permanent employees. Equal monthly contributions are made by the company and employees to the fund, at the rate of 10% of basic salary. Contributions made by the company are recognized as expense. The Company has no further payment obligations once the contributions have been paid. Obligation for contributions to defined contribution plan is recognized as an expense in the profit and loss account as and when incurred.

3.16.2 Defined benefit plan

There is an approved Gratuity Fund for all of its permanent employees. Retirement benefits are payable to staff on resignation, retirement or termination from service, subject to completion of prescribed qualifying period of service under the scheme.

The latest actuarial evaluation was carried out as at December 31, 2019 using the “Projected Unit Credit Method”. Amounts arising as a result of ‘Remeasurements’, representing the actuarial gains and losses and the difference between the actual investment returns and the return implied by the net interest cost are recognized in the statement of financial position immediately, with a charge or credit to ‘Other Comprehensive Income’ in the periods in which they occur.

The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.



The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments.

Actuarial gains or losses are recognized in other comprehensive income when they occur. Amounts recorded in profit and loss account are limited to current and past service costs, gains or losses on settlements and net interest income (expense).

3.17 Impairment

An assessment is made at each statement of financial position date to determine whether there is objective evidence that a financial asset or group of assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognized, in the profit and loss account, for the difference between the recoverable amount and the carrying amount. Provisions for impairment are reviewed at each statement of financial position date and adjusted to reflect the current best estimates. Changes in the provisions are recognized as income or expense.

The carrying amount of non financial assets is reviewed at each statement of financial position date to determine whether there is any indication of impairment of any asset or a group of assets. If such indication exists, the recoverable amount of such asset is estimated. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount.

In the case of reinsurance assets, if an event occurs before or after the statement of financial position date, that gives rise to a reasonable and measurable probability that the amounts recoverable from any of the counter parties to the reinsurance contract are not recoverable, in whole or in part, an impairment loss is charged to profit for the year.

3.18 Dividend distribution

Dividend is recognized as a liability in the period in which it is declared and approved. Appropriations of profit are reflected in the statement of changes in equity in the period in which such appropriations are approved.

3.19 Management expenses

Expenses of management include both directly and indirectly attributable expenses allocated to various classes of business / operating segments on the basis of gross premium written. Management judgement is involved in determining the nature of expenses that are not allocable to the underwriting business and based thereon are classified as other expenses.

Allocation of management expenses effects the underwriting results of the operating segments, as disclosed in relevant note to these financial statements.


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3.20 Provision for outstanding claims including Incurred But Not Reported (IBNR)

The Company recognizes a liability in respect of all claims incurred up to the reporting date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in an insurance contract. The liability for claims includes amounts in relation to unpaid reported claims, IBNR and expected claim settlement costs.

Outstanding claims comprise the estimated cost of claims incurred but not settled at the reporting date, whether reported or not. The Company engages an actuary to estimate the IBNR as per the SECP Circular No. 9 of 2016, “SEC guidelines for estimation of Incurred but not Reported claim reserve, 2016”.

The Guidelines require that estimation for provision for claims incurred but not reported for each class of business, by using prescribed method “Chain Ladder Method” and other alternate method as allowed under the provisions of the Guidelines. The Chain Ladder Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level to derive an IBNR estimate.

The process used to determine the assumptions for calculating the outstanding claim reserve is intended to result in neutral estimates of the most likely or expected outcome. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate, case by case basis with due regard to claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Case estimates are reviewed regularly and are updated as and when new information is available.

The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, in which case information about the claim event is available. IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of the retakaful recoveries. The estimation process takes into account the past claims reporting pattern and details of reinsurance arrangements.

The premium liabilities have been determined such that the total premium liability provisions (unearned premium reserve and contribution deficiency reserve) would be sufficient to service the future expected claims and expenses likely to occur on the unexpired policies as of reporting date. The expected future liability is determined using estimates and assumptions based on the experience during the expired period of the contracts and expectations of future events that are believed to be reasonable.

3.21 Reinsurance recoveries against outstanding claims

Reinsurance recoveries against outstanding claims are recognized on occurrence of the related claim liability. These are recorded as an asset and measured at the amount expected to be received.



3.22 Provision for doubtful receivables

Receivables under insurance contracts are recognized when due, at the fair value of the consideration receivable less provision for doubtful debts, if any, provision for impairment of premium receivables is established when the chances of recovery are less. Receivables are also analyzed as per their ageing and accordingly provision is maintained on a systematic basis. The provision is made while taking into consideration of expected recoveries, if any.

3.23 Unearned reinsurance commission

Unearned commission income from the reinsurers represents the portion of income relating to the unexpired period of coverage and is recognized as a liability.

3.24 Creditors and accruals

Liabilities for creditors and other accruals are carried at cost which is the fair value of the consideration to be paid in the future for the goods and/or services received, whether or not billed to the Company.

3.25 Loan to employees

These are recognized at cost, which is the fair value of the consideration given.

3.26 Foreign currency translation

Transactions in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the reporting date. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. Exchange differences on foreign currency translations are included in profit and loss account.

3.27 Financial assets

3.27.1 Classification

The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available-for-sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at the time of initial recognition.

a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the statement of financial position date, which are classified as non-current assets. Loans and receivables comprise insurance/reinsurance receivables, loans, advances, deposits and other receivables, reinsurance recoveries against outstanding claims and cash and bank balances in the statement of financial position.


772019ANNUAL REPORT

b) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investments within twelve months from the statement of financial position date.

c) Held-to-maturity

Investments with fixed maturity, that the management has the intent and ability to hold till maturity are classified as held-to-maturity and are initially recognized at cost being the fair value of consideration given and include transaction costs.

Income from held-to-maturity investments is recognized on a time proportion basis taking into account the effective yield on the investments.

In case of fixed income securities redeemable at a given date where the cost is different from the redemption value, such difference is amortized uniformly over the period between the acquisition date and the date of maturity in determining ‘cost’ at which these investments are stated as per the requirements of the SEC (Insurance) Rules, 2002.

3.27.2 Recognition and measurement

All financial assets are recognized at the time when the Company becomes a party to the contractual provisions of the instrument. Regular purchases and sales of investments are recognized on trade-date; the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the statement of profit or loss. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. For investments having quoted price in active market, the quoted price represents the fair value. In other cases, fair value is measured using appropriate valuation methodology and where fair value cannot be measured reliably, these are carried at cost. Loans and receivables are carried at amortized cost using the effective interest rate method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the statement of profit or loss in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the statement of profit or loss as part of other income when the Company’s right to receive payments is established.



Changes in the fair value of securities classified as available-for-sale are recognized in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of profit or loss as gains and losses from investment securities. Interest on available-for-sale investments calculated using the effective interest method is recognized in the statement of profit or loss. Dividends on available-for-sale equity instruments are recognized in the statement of profit or loss when the Company’s right to receive payments is established.

The Company assesses at each reporting date whether there is an objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognized in the statement of profit or loss. Impairment losses recognized in the statement of profit or loss on equity instruments are not reversed through the statement of profit or loss. Impairment testing of insurance/reinsurance receivables and other receivables is described in note 3.22.

3.27.3 Financial liabilities

All financial liabilities are recognized at the time when the Company becomes a party to the contractual provisions of the instrument.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognized in the statement of profit or loss.

3.27.4 Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and the net amount is reported in the financial statements only when there is a legally enforceable right to set off the recognized amount and the Company intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously.

3.28 Borrowings

Loans and borrowings from banks are recorded at the proceeds received. Finance charges are accounted for on an accrual basis and are included in creditors and accruals to the extent of the remaining unpaid amount.

3.29 Share capital

Ordinary shares are classified as equity and recognized at their face value. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.


792019ANNUAL REPORT

3.30 Investments

All investments are initially recognized at cost, being the fair value of the consideration given and include transaction costs. All investments in equity securities, debt securities and term deposits are accounted for under IAS-39 and based thereon can be classified into any of the following categories:

- Held to maturity; and- Available for sale

i) Equity securities

Currently the company classifies investment in equity securities such as listed / unlisted shares in other companies, mutual fund units / investments, etc. as ‘Available for sale’.

Available for sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified as ‘held to maturity’ or ‘investment at fair value through profit and loss account’. These investments are intended to be held for an indefinite period of time which may be sold in response to the need for liquidity, changes in interest rates, equity prices or exchange rates. Investments classified as ‘available for sale’ are initially measured at cost, being the fair value of consideration given.

At each subsequent reporting date, available for sale investments are remeasured at fair market value. Changes in fair market value are recognised in other comprehensive income / (loss) until derecognised or determined to be impaired. Gains / losses on derecognition and impairment losses / reversals are recognized in profit and loss account.

ii) Debt securities

The Company classifies its investment in debt securities as either ‘Held to maturity’ or ‘Available for sale’ depending upon the maturity of the investment.

Investments with fixed maturity, where management has both the intent and the ability to hold to maturity, are classified as ‘held to maturity’, while debt investments having an indefinite term / perpetual maturity are classified as ‘available for sale’. These investments are initially measured at the cost being the fair value of consideration paid.

Subsequently ‘held to maturity’ investments are measured at amortized cost using the effective yield method. Any premium paid or discount availed on acquisition of held to maturity investments is deferred and included in the income for the period on a straight line basis over the term of investment. While ‘available for sale’ investments are remeasured at fair market value at each subsequent reporting date. Changes in fair market value, if any are recognised in other comprehensive income / (loss) until derecognised or determined to be impaired. Gains / losses on derecognition and impairment losses / reversals are recognized in profit and loss account.

The Company has classified debt investments in Pakistan Investment Bonds as ‘Held to maturity’ at the reporting date.




4 TEMPORARY EXEMPTION FROM APPLICATION OF IFRS 9 - FINANCIAL INSTRUMENTS

As allowed by the International Accounting Standards Board (IASB) the Company’s management has opted for a temporary exemption from IFRS 9 on the basis that its activities are predominantly connected with insurance.

The Company qualifies for temporary exemption from applying IFRS 9 ‘Financial Instruments’ on the grounds that it has not previously applied any version of IFRS 9 and its activities are predominantly connected with insurance, with the carrying amount of its liabilities within the scope of IFRS 4 being greater than the required threshold of the total carrying amount of all its liabilities at December 31, 2015, and with no subsequent change in its activities that warrant a reassessment of the same.

“Furthermore, the amendment of IFRS 4 - Insurance Contracts requires entities to disclose the fair value at the end of the reporting period and the change in fair value during the period for groups of financial assets with contractual cash flows that are solely payments of principal and interest (‘SPPI’) and other financial assets separately. The fair value measurement of investments has been documented in note 37.1 and credit exposure of assets that pass the SPPI test has been documented in note 39.3 to these financial statements.

Security General Insurance Company Limited has assessed that the following financial asset have contractual cash flows that meet the SPPI criteria:

a) Investments in debt securities - Pakistan Investment Bondsb) Insurance debtors and other short term receivablesc) Balances with banks

‘’The remaining financial assets held by the entity have contractual cash flows that do not represent solely payments of principal and interest. The group includes the following financial assets:

a) Investments in equity securities - Shares in listed / unlisted companiesb) Investments in equity securities - Mutual funds

5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with approved financial reporting standards, as applicable in Pakistan, requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Estimates and judgments are continuously evaluated and are based on the historical experience, including expectations of future events that are believed to be reasonable under the circumstances. These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both periods. The major areas involving a higher degree of judgments or complexity or areas where assumptions and estimates are significant to the financial statements are as follows:

812019ANNUAL REPORT

a) Premium deficiency reserve (liability adequacy test) (note 3.8)b) Provision for outstanding claims including, incurred but not reported claims (IBNR) (notes 3.20 and 25)c) Provision for taxation and deferred tax (notes 3.15 ,19 and 32 )d) Provision for doubtful receivables (notes 3.22 and 12)e) Useful lives of property and equipment and investment property (notes 3.2.1, 3.4, 6 and 8)f) Defined benefit plan (notes 3.16.2 and 18)g) Classification of investments and its impairment (notes 3.27.1,9 and 10)

Note 2019 2018 Rupees in thousand

6 PROPERTY AND EQUIPMENT

Operating assets 6.1 145,332 120,118 Capital work-in-progress - Advance to suppliers - -

145,332 120,118



6.1

Ope

ratin

g as

sets

2019

Cost

Accu

mul

ated

dep

reci

atio

nW

ritt

en d

own

valu

e as

at

Dec

embe

r 31

Dep

reci

atio

n ra

te %

As a

t Ja

nuar

y 1

Addi

tion/

(d

ispo

sals

)As

at

Dec

embe

r 31

As a

t Ja

nuar

y 1

Char

ge fo

r th

e ye

ar/

(dis

posa

ls)

As a

t D

ecem

ber

31--

----

----

----

----

----

----

----

----

----

--R

upee

s in

thou

sand

----

----

----

----

----

----

----

----

----

----

Free

hold

land

22,

672

-

22,

672

-

-

-

22,

672

0%B

uild

ings

on

free

hold

land

62,

656

1,2

28

63,

884

43,

003

1,9

80

44,

983

18,

901

10%

Leas

ehol

d im

prov

emen

ts 2

,561

1

,118

3

,679

1

,060

1

64

1,2

24

2,4

55

10%

Furn

iture

and

fixt

ures

10,

381

2,1

58

12,

474

4,9

04

627

5

,494

6

,980

10

% (6

4) (3

7)O

ffice

equ

ipm

ent

16,

951

3,0

41

18,

211

11,

476

969

1

1,42

5 6

,786

15

% (1

,781

) (1

,020

)

Com

pute

r eq

uipm

ent

7,4

22

1,0

46

8,0

43

3,7

01

623

4

,031

4

,012

15

% (4

24)

(294

)M

otor

veh

icle

s 1

09,3

88

40,

658

142

,735

4

7,77

0 1

5,70

0 5

9,20

9 8

3,52

6 20

% (7

,311

) (4

,261

)

232

,031

4

9,24

9 2

71,6

98

111

,914

2

0,06

3 1

26,3

66

145

,332

(9

,580

) (5

,612

)

2018

Cos

tAc

cum

ulat

ed d

epre

ciat

ion

Wri

tten

dow

n va

lue

as a

t D

ecem

ber

31

Dep

reci

atio

n ra

te %

As a

t Ja

nuar

y 1

Addi

tion/

(d

ispo

sals

)As

at

Dec

embe

r 31

As a

t Ja

nuar

y 1

Cha

rge

for

the

year

/(d

ispo

sals

)

As a

t D

ecem

ber

31--

----

----

----

----

----

----

----

----

----

--R

upee

s in

thou

sand

----

----

----

----

----

----

----

----

----

----

Free

hold

land

22,

672

-

22,

672

-

-

-

22,

672

0%B

uild

ings

on

free

hold

land

62,

656

-

62,

656

40,

819

2,1

84

43,

003

19,

653

10%

Leas

ehol

d im

prov

emen

ts 2

,561

-

2

,561

8

93

167

1

,060

1

,501

10

%Fu

rnitu

re a

nd fi

xtur

es 9

,542

8

39

10,

381

4,3

63

540

4

,903

5

,478

10

%O

ffice

equ

ipm

ent

15,

705

1,3

80

16,

951

10,

660

875

1

1,47

6 5

,475

15

% (1

34)

(59)

Com

pute

r eq

uipm

ent

6,4

32

990

7

,422

3

,116

5

85

3,7

01

3,7

21

15%

Mot

or v

ehic

les

94,

537

27,

879

109

,388

4

3,95

8 1

2,28

0 4

7,77

0 6

1,61

8 20

% (1

3,02

8) (8

,468

)

214

,105

3

1,08

8 2

32,0

31

103

,809

1

6,63

1 1

11,9

13

120

,118

(1

3,16

2) (8

,527

)


832019ANNUAL REPORT

6.1.1 Disposal of Fixed Asset

2018Particulars of the assets Particulars of buyer Cost Book value Sale

proceeds Mode of disposal

Vehicles Rupees in thousandHonda CG-125 Ghulam Shabir Tahir 106 34 34 Company’s policy Daihatsu Move Muhammd Ali Rashid 1,250 536 536 Company’s policy Suzuki Swift Umer Haroon 1,345 450 450 Negotiation Toyota Corolla Rana Shahid Mahmood 1,524 728 750 Company’s policy Honda City Muhammd Shoaib Baig 1,557 807 817 Company’s policy Honda CG-125 Muhammad Aamir Jamil 112 75 75 Company’s policy Honda CD- 70 Khwaja Muhammad

Khursheed 73 23 25 Company’s policy

Suzuki Swift Muhammad Yahya Farooq 1,345 398 443 Company’s policy 7,311 3,051 3,130

Office equipmentHuawei Mate 10 Lite Shahzaib Alam 15 13 5 Company's Policy Samsung J7 Insurance Claim Recovered 35 25 26 Company's Policy Samsung J7 Prime Asif Shakoor 37 25 12 Company's Policy Grand Prime Mr. Fayyaz 40 16 3 Negotiation Samsung Note 3 Qadeer Ahmed 77 30 7 Negotiation Samsung Galaxy Note 8 Insurance Claim Recovered 115 94 98 Company's Policy Office Furniture Accounts Reclassification 20 243 5 Negotiation J-7 Prime Khalid Pervaiz 243 14 - Reclassification Oppo A-37 Muhammad Qasim 15 9 6 Company's Policy Haier Split AC Muhammad Shoaib 33 6 5 Negotiation Split AC's Mr. Abdullah 318 86 30 Negotiation Photocopier Machine Mr. Abdullah 51 18 8 Negotiation Water Dispensor Mr. Abdullah 9 2 3 Negotiation Disposal Of Transformer Wapda 774 181 50 Negotiation

1,781 762 256

Furniture & FixturesSale of 7 Chairs Mr. Abdullah 30 10 2 Negotiation Sale of 8 Chairs Mr. Abdullah 34 17 2 Negotiation

64 27 4

ComputersSale of PCs Wastech Computers 414 122 20 Negotiation Dell Optiplex-790 C2D Wastech Computers 10 9 9 Negotiation

424 131 29 9,580 3,971 3,419




Disposal of Fixed Asset

2018

Particulars of the assets Particulars of buyer Cost Book value Sale proceeds

Mode of disposal

Vehicles Rupees in thousandSuzuki Swift Asim Durrani 1,146 337 337 Company's policy Suzuki Alto Nazim Nawaz 984 321 321 Company's policy Suzuki Alto Jawad Bakali 665 200 250 Negotiation Suzuki Swift Mehmood ul Hassan 1,146 298 298 Company's policy Suzuki Swift Imran Sohail 1,107 315 315 Company's policy Suzuki Alto Akmal Shahbaz 788 242 242 Company's policy Toyota Corolla Gli Asif Shakoor 1,750 525 525 Company's policy Mitsubishi Wagon Muhammad Hairs 1,270 753 753 Company's policy Suzuki Mehran Muhammad Arshad 380 140 260 Company's policy Suzuki Mehran Muhammad Aamir Saeed 693 224 250 Company's policy Corolla Altis Naveed Hayat Tarar 2,300 1,092 1,093 Company's policy Honda CD - 70 Rizwan Rafiq 66 10 24 Company's policy Honda CD-70 Syed Rizwan Gillani 70 18 18 Company's policy Honda CD-70 Sohail Zaman 73 30 30 Company's policy Honda CG-125 Naveed Ahmed Khan 69 14 16 Company's policy Suzuki Alto Muhammad Amir 520 40 205 Company's policy

13,027 4,559 4,937 Office equipmentGenerator Amjad Hussain 60 21 17 Negotiation Samsung C7 Insurance claim recovered 35 27 31 Company's policy

Samsung Alpha Insurance claim recovered 15 11 14 Company's policy Samsung J5 Insurance claim recovered 15 10 5 Company's policy Q-Mobile X700 Insurance claim recovered 10 7 3 Company's policy

135 76 70

13,162 4,635 5,007

6.1.2 The depreciation charge/expense for the year has been allocated to management expenses as disclosed in note 27.

6.1.3 The Company owns 2 buildings and the resulting area of land. First one is the Head Office situated at 18 C/E1 Gulberg 3, Lahore.The land for head office was purchased in 2004 and the Company shifted to this office in 2007.The second one is an office in Gujranwala, which was purchased in the year 2009. The building at Gujranwala is vacant at present. The amount of Gujranwala building is approx. Rs 1.6 million and Company is of the view that this building will be used for operating a corporate branch in future. The owned buildings are insured under insurance policy. The Company charges depreciation on building at the rate of 10% per annum.

852019ANNUAL REPORT


7 INTANGIBLE ASSETS

Capital work-in-progress 4,044 4,044

7.1 No amortization of intangible asset has been charged as it is under development.


8 Investment property2019

Cost Accumulated depreciation Written down value

as at December

31

Deprecia-tion rate

As at January 1

Addition/ (disposals)

As at December

31

As at January 1

Charge for the year/

(disposals)

As at December

31%

----------------------------------Rupees in thousand----------------------------------

Freehold land 428,217 9,202 437,419 - - - 437,419 0%

Building 30,759 - 30,759 1,028 2,974 4,002 26,757 10%

458,976 9,202 468,178 1,028 2,974 4,002 464,176

2018


as at December

31

Deprecia-tion rate

As at January 1

Addition/ (disposals)

As at December

31

As at January 1


(disposals)

As at December

31%

----------------------------------Rupees in thousand----------------------------------

Freehold land - 428,217 428,217 - - - 428,217 0%

Building - 30,759 30,759 - 1,028 1,028 29,731 10%

- 458,976 458,976 - 1,028 1,028 457,948

8.1 The depreciation charge/expense for the year has been allocated to management expenses as disclosed in note 27.

8.2 The market value of the investment property as per valuation carried out by professional valuer as at the year ended December 31, 2019 is Rs. 514.690 million (2018:Rs 466.099 million).


Note 2019 2018 Cost Carrying

value Cost Carrying

value Rupees in thousand

9 INVESTMENTS IN EQUITY SECURITIES

Available-for-sale

Related parties Listed shares 9.1 218,375 218,375 218,375 218,375 Unlisted shares 9.2 2,057,352 2,057,352 960,620 960,620

2,275,727 2,275,727 1,178,995 1,178,995 Unrealized gain on revaluation 500,279 355,848

2,776,006 1,534,843

Others Listed shares 9.3 8,639,691 8,639,691 8,345,884 8,345,884 Mutual funds 9.4 460 460 460 460

8,640,151 8,640,151 8,346,344 8,346,344 Unrealized gain on revaluation 4,767,981 4,059,161

13,408,132 12,405,505

Total investments available-for-sale 16,184,138 13,940,348


872019ANNUAL REPORT

9.1

List

ed s

hare

s -

rela

ted

part

ies

Num

ber

of s

hare

sFa

ce v

alue

Com

pany

’s n

ame

Cost

Mar

ket v

alue

2019

2018

2019

2018

2019

2018

Rup

ees

in th

ousa

nd

6,8

37,0

97

6,8

37,0

97

10La

lpir

Pow

er L

imite

dEq

uity

hel

d 1.

8% (2

018:

1.8

%-n

ote

8.1.

1 9

2,72

0 9

2,72

0 9

9,20

6 1

12,8

80

6,4

07,7

96

6,4

07,7

96

10Pa

kgen

Pow

er L

imite

d Eq

uity

hel

d 1.

72%

(201

8: 1

.72%

)-no

te 8

.1.1

8

8,90

0 8

8,90

0 1

17,3

91

109

,189

228

,500

2

28,5

00

10D

.G. K

han

Cem

ent C

ompa

ny L

imite

d Eq

uity

hel

d 0.

05%

(201

8: 0

.05%

) 1

9,51

6 1

9,51

6 1

6,97

1 1

8,31

4

Tex

tile

338

,000

3

38,0

00

10 N

isha

t Chu

nian

Lim

ited

Equi

ty h

eld

0.14

% (2

018:

0.1

4%)

17,

239

17,

239

14,

416

16,

420

218

,375

2

18,3

75

247

,984

2

56,8

03

9.1.

1 T

he in

vest

men

ts in

clud

e 50

0 sh

ares

of P

akge

n Po

wer

Lim

ited

and

550

shar

es o

f Lal

pir

Pow

er L

imite

d he

ld in

the

nam

e of

nom

inee

dire

ctor

of t

he C

ompa

ny.

9.2

Unl

iste

d sh

ares

- r

elat

ed p

artie

s

Num

ber

of s

hare

sFa

ce v

alue

Com

pany

’s n

ame

Cost

Mar

ket v

alue

2019

2018

2019

2018

2019

2018

Rup

ees

in th

ousa

nd

111

,821

,737

7

1,06

2,00

0 10

Nis

hat H

otel

s an

d Pr

oper

ties

Lim

ited

Eq

uity

hel

d 11

.65%

(201

8: 7

.4%

)-no

te 8

.2.1

1

,359

,852

7

10,6

20

1,8

30,5

22

1,0

28,0

40

69,

750,

000

20,

000,

000

10H

yund

ai N

isha

t Mot

ors

( Pri

vate

) Lim

ited

Eq

uity

hel

d 10

% (2

018:

10%

) 6

97,5

00

200

,000

6

97,5

00

200

,000

N/A

N

/A

N/A

Hyu

ndai

Nis

hat M

otor

s ( P

riva

te) L

imite

d

Adva

nce

agai

nst s

hare

s-no

te 9

.2.2

-

5

0,00

0 -

5

0,00

0

2,0

57,3

52

960

,620

2

,528

,022

1

,278

,040



9.2.1 This represents investment in the ordinary shares of Nishat Hotels and Properties Limited (‘NHPL’) a related party (based on common directorship) which is principally engaged in establishing and managing a multi-purpose facility including a shopping mall, hotel and banquet halls in Johar Town, Lahore, by the name of Nishat Emporium. Since NHPL’s ordinary shares are not listed, an independent valuer engaged by the Company has estimated a fair value of Rs 16.37 per ordinary share as at December 31, 2019 through a valuation technique based on discounted cash flow analysis of NHPL. Hence, it has been classified under level 3 of fair value hierarchy as further explained in note 38 to these financial statements. The fair value gain of Rs 153.250 million is included in the fair value loss recognised during the year in other comprehensive income.

The main level 3 inputs used by the Company are derived and evaluated as follows:

- Discount rate is determined using a capital asset pricing model to calculate a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to NHPL.- Long term growth rate is estimated based on historical performance of NHPL and current market information for similar type of companies.

The significant assumptions used in this valuation technique are as follows: - Discount rate of 12.21%. - Long term growth rate of 4% for computation of terminal value. - Annual growth in costs and revenues is linked to inflation at 5.25% per annum.

Sensitivity analyses

Sensitivity analysis of the significant assumptions used in the valuation technique are as follows:If the discount rate increases by 1% with all other variables held constant, the fair value as at December 31, 2019 would decrease by Rs 400.856 million.If the long term growth rate decreases by 1% with all other variables held constant, the fair value as at December 31, 2019 would decrease by Rs 205.828 million.If inflation decreases by 1% with all other variables held constant, the fair value as at December 31, 2019 would decrease by Rs 14.69 million.

9.2.2 This represents advance amount paid to Hyundai Nishat Motors ( Private) Limited against issue of shares. These shares were allotted to the Company subsequent to the year end dated January 19, 2019.


892019ANNUAL REPORT

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912019ANNUAL REPORT

Maturity Effective yield

2019 2018

Rupees in thousand

10.2 Particulars of debt securities are as follows :

Pakistan Investment Bonds 18-Aug-21 12% 1,991 1,984 Pakistan Investment Bonds 22-Jul-20 12% 1,993 1,982 Pakistan Investment Bonds 19-Jul-22 12% 1,976 1,969 Pakistan Investment Bonds 09-Aug-28 9% 63,713 63,680 Pakistan Investment Bonds 03-Sep-19 12% - 4,992

69,673 74,607

10.1.1 Pakistan Investment Bonds

Face value Type of security Profit

payment Profit rate Maturity date Carrying value

2019 2018 Rupees in thousand

100 10 year Pakistan Investment Bond

Bi-annually 12.00% 18-Aug-21 1,991 1,984


Bi-annually 12.00% 22-Jul-20 1,993 1,982


Bi-annually 12.00% 9-Aug-28 1,976 1,969


Bi-annually 6-months Kibor%+.5%

19-Jul-22 63,713 63,680


Bi-annually 12.00% 3-Sep-19 - 4,992

69,673 74,607

Note 2019 2018 Cost Carrying

value Cost Carrying

value Rupees in thousand

10 INVESTMENTS IN DEBT SECURITIES

Held to maturity - Government securities Pakistan Investment Bonds 10.1 69,673 69,673 74,607 74,607

10.1 This represents carrying amount of government securities placed as statutory deposit with the State Bank of Pakistan (‘SBP’) in accordance with the requirements of clause (a) of sub-section 2 of section 29 of the Insurance Ordinance, 2000.




12.1 This includes amounts due from the following related parties:

Nishat Mills Limited 1,581 2,705 Nishat Power Limited 134,495 123,899 Nishat Hospitality (Pvt) Limited - 32 Nishat Dairy (Pvt) Limited 17 23 Nishat Hotels and Properties Limited 106 96 Nishat Linen (Pvt) Ltd 224 62 Nishat Paper Product Co. Ltd. 96 469 Nishat Agriculture Farming (Pvt) Ltd. - 12 Nishat Real Estate Development Co. (Pvt) Ltd. - 112 Nishat Developers (Pvt) Limited 6 6 D.G. Khan Cement Co. Ltd 49,401 42,418 Hyundai Nishat Motor (Private) Limited 44 -


11 LOANS AND OTHER RECEIVABLES - CONSIDERED GOOD

Receivable from related parties 11.1 5,168 60 Accrued investment income 4,673 2,971 Security deposit 6,858 3,566 Loans to employees 1,010 931 Other receivable 11.2 17,259 9,223

34,968 16,751

11.1 This represents receivable from Hyundai Nishat Motor Private Limited, a related party (due to common directorship).

11.2 These include a receivable from takaful operations amounting to Rs 1.569 million (2018 : .423 million).

12 INSURANCE/REINSURANCE RECEIVABLES

Due from insurance contract holders - unsecured- Considered good 1,221,472 1,056,905 - Considered doubtful 62,183 57,823

12.1 1,283,655 1,114,728 Provision for impairment of receivables from insurance contract holders 12.2 (62,183) (57,823)

1,221,472 1,056,905 Due from other insurer/reinsurer- unsecured- Considered good 1,068,059 1,119,735 - Considered doubtful 30,046 30,046

1,098,105 1,149,781 Provision for impairment of receivables from other insurer/ reinsurer 12.3 (30,046) (30,046)

1,068,059 1,119,735 2,289,531 2,176,640

932019ANNUAL REPORT



12.2 Provision for doubtful receivables from insurance contract holders

Opening as at Jan 01 57,823 57,823 Provision made during the year 4,360 - Balance as at December 31 62,183 57,823

Age analysis of the amounts due from related parties is as follows :

1 More than 1 2019 2018year Year

Rupees in thousand

Nishat Mills Limited 1,557 24 1,581 2,705 Nishat Power Limited 129,892 4,603 134,495 123,899 Nishat Hospitality (Pvt) Limited - - - 32 Nishat Dairy (Pvt) Limited 1 16 17 23 Nishat Hotels and Properties Limited 11 95 106 96 Nishat Linen (Pvt) Ltd 168 56 224 62 Nishat Paper Product Co. Ltd. 1 95 96 469 Nishat Agriculture Farming (Pvt) Ltd. - - - 12 Nishat Real Estate Development Co. (Pvt) Ltd. - - - 112 Nishat Developers (Pvt) Limited - 6 6 6 D.G. Khan Cement Co. Ltd 45,973 3,428 49,401 42,418 Hyundai Nishat Motor (Private) Limited 44 - 44 - Pakistan Aviators & Aviation (Pvt) Ltd. - 1 1 1 Pakgen Power Limited 362,683 8,175 370,858 337,265 Lalpir Power Limited 348,697 8,603 357,300 325,053 Nishat Spinning (Pvt) Ltd. - 46 46 -

889,027 25,148 914,175 832,153


Pakistan Aviators & Aviation (Pvt) Ltd. 1 1 Pakgen Power Limited 370,858 337,265 Lalpir Power Limited 357,300 325,053 Nishat Spinning (Pvt) Ltd. 46 -

914,175 832,153




12.3 Provision for doubtful receivables from other insurer/reinsurer

Opening as at Jan 01 30,046 24,857 Provision made during the year - 5,189 Balance as at December 31 30,046 30,046

13 PREPAYMENTS

Prepaid reinsurance premium ceded 13.1 1,148,842 1,003,893 Prepaid rent 598 612 Others 2,136 1,784

1,151,576 1,006,289

13.1 Movement in prepaid reinsurance premium ceded

As at January 01 1,003,893 769,414 Reinsurance premium ceded during the year 2,308,580 1,875,705 Reinsurance expense for the year (2,163,631) (1,641,226)As at December 31 1,148,842 1,003,893

14 CASH AND BANK

Cash and cash equivalent Cash in hand 6 11

Cash at bank Current accounts 23,832 25,877 Saving accounts 14.1 235,372 142,870 Deposit with SBP 14.2 9,350 64,350

268,554 233,097 268,560 233,108

14.1 The balance in savings accounts bears mark-up which ranges from 8.65% to 12.25% (2018: 2.39% to 8.65%) per annum.

14.2 This represents statutory deposit with the SBP in accordance with the requirements of clause (a) of sub-section 2 of section 29 of the Insurance Ordinance, 2000.

14.3 Cash and short term borrowing include the following for the purposes of the cash flow statement:


Cash and cash equivalents 268,560 233,108 Short term borrowings 20 (193,228) (194,876)

75,332 38,232

952019ANNUAL REPORT


15 WINDOW TAKAFUL OPERATIONS

15.1 Operator’s Fund

Assets Property and equipment 2,625 1,908 Loans and other receivables 2,246 708 Wakala fees receivable 27,023 3,949 Deferred commission expense 9,956 3,053 Cash and bank 39,326 45,224 Qard-e-Hasna to Participants' Takaful Fund 5,000 - Takaful/retakaful receivables 11 - Total assets 86,187 54,842

15.2 Total liabilities 37,034 8,852

15.3 Profit and loss account

Wakala fee 21,065 2,024 Other expenses (534) (869)Management expenses (7,674) (4,783)Commission expenses (11,373) (1,105)Other income 1,679 723 Profit / (Loss) for the year 3,163 (4,010)


16 ORDINARY SHARE CAPITAL

16.1 Authorized share capital

2019 2018 2019 2018Number of Shares Rupees in thousand

100,000,000 100,000,000 Ordinary shares of Rs 10 each 1,000,000 1,000,000

16.2 Issued, subscribed and paid up share capital

68,062,500 68,062,500 Ordinary shares of Rs 10 each fully paid in cash 680,625 680,625

16.2.1 10,226,244 (2018: 10,226,244) ordinary shares of the Company are held by Nishat Mills Limited (the ‘Investor’, Company being its associate under IAS 28). Nishat Mills Limited is an Investor as per International Accounting Standard (‘IAS’) 28, ‘Investments in Associates and Joint Ventures.

16.2.2 There has been no movement in share capital of the Company.




17 Reserves

Capital reserve Fair value reserve 17.1 3,740,464 3,311,257

Revenue reserve General reserve 2,000 2,000

3,742,464 3,313,257

17.1 This represents unrealized gain on re-measurement of available-for-sale investments at fair value and is not available for distribution. This shall be transferred to profit and loss account on de-recognition of investments.

18 Retirement benefit obligations

18.1.1 Salient features

The Company offers an approved gratuity fund for all employees. Annual contributions are made to the fund on the basis of actuarial recommendations. The gratuity is governed under the Trust Act, 1882, the Trust Deed and the Rules of the Fund, the Income Tax Ordinance, 2001 , the Income Tax Rules, 2002 and the applicable local regulations. An actuarial valuation is carried out every year to determine the liability of the Company in respect of the benefit. The most recent valuation in this regard has been carried out as at December 31 , 2019 using the Projected Unit Credit (PUC) Actuarial Cost Method as allowed under the International Accounting Standard (lAS) 19-’Employee Benefits’ for valuation of the Fund.

The Company faces the following risks on account of gratuity fund:

Final salary risksThe risk that the final salary at the time of cessation of service is greater than what was assumed. Since the benefit is calculated on the final salary, the benefit amount would also increase proportionately.

Asset volatilityMost assets are invested in risk free investments. However, investments in shares, are subject to adverse fluctuation as a result of change in market price.

Discount rate fluctuationThe plan liabilities are calculated using a discount rate set with reference to corporate bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the current plan’s bond holdings.

Investment risksThe risk of the investment underperforming and not being sufficient to meet the liabilities. The risk is mitigated by closely monitoring the performance of investment.

972019ANNUAL REPORT

Mortality risksThe risk that the actual mortality experience is different. The effect depends on the beneficiaries’ service, age distribution and the benefit.

Longevity risksThe risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population.

Withdrawal risksThe risk of higher or lower withdrawal experience than assumed. The final effect could go either way depending on the beneficiaries’ service, age distribution and the benefit.

2019 2018

18.1.2 Principal actuarial assumptions

Valuation discount rate 13.75% 13.75%Valuation discount rate for statement of comprehensive income 11.75% 13.75%Salary increase rate - short term 10.75% 12.75%Salary increase rate - long term 10.75% 12.75%Normal retirement age 60 60 Withdrawal rate Moderate Moderate

Mortality rate SLIC 2001 - 2005

SLIC 2001 - 2005

Net salary increase date 01/01/2019 01/01/2019 Duration of plan 10 years 11 years

18.1.3 The amounts recognized in statement of financial position are as follows:

Reconciliation Present value of defined benefit obligations 18.1.4 42,929 35,523 Fair value of plan assets 18.1.5 (37,098) (30,339)Net payable to defined benefit plan 5,831 5,184

Opening balance of payable 5,184 4,485 Expense recognized 4,782 4,075 Contributions to the fund during the year (5,184) (4,485)Recognition in other comprehensive income - net 1,049 1,109 Closing balance of payable 5,831 5,184




18.1.4 Movement in the present value of defined benefit obligations is as follows;

Present value of obligations as at January 01 35,523 28,448 Current service cost 4,426 3,861 Interest cost 4,838 2,685 Benefits paid (672) (378)Actuarial (gain)/losses from changes in financial assumptions (206) 384 Experience adjustments (980) 523 Present value of defined benefit obligations as at December 31 42,929 35,523

18.1.5 Movement in the fair value of plan assets is as follows;

Fair value of plan assets as at January 01 30,339 23,963 Contribution made to the fund during the year 5,184 4,485 Interest income on plan assets 4,482 2,472 Benefits paid (672) (378)Return on plan assets, excluding interest income (2,235) (203)Fair value of plan assets as at December 31 37,098 30,339

18.1.6 Composition of plan assets

Fair value of investments 25,469 25,142 Cash at bank 11,629 5,197 Fair value of plan assets as at December 31 37,098 30,339

18.1.7 Charge for the year

The following amounts have been charged to the profit and loss account in respect of defined benefit plan:

Current service cost 4,426 3,861 Interest cost on defined benefit obligations 4,838 2,685 Interest income on plan asset (4,482) (2,472)

4,782 4,075


992019ANNUAL REPORT


18.1.8 Recognition in other comprehensive income

The following amounts have been recognized in other comprehensive income:

Experience adjustments (980) 523 Actuarial (gains)/losses from changes in financial assumptions (206) 384 Return on plan assets, excluding interest income 2,235 203

1,049 1,109


Discount rate + 100

bps

Discount rate

- 100 bps

Salary increase

rate + 100 bps

Salary increase

rate - 100 bps

Rupees in thousand18.1.9 Sensitivity analysis

Year end sensitivity analysis (±100 bps) on present value of defined benefit obligations is as follows:

38,710 47,831 47,898 38,580

18.1.10 The Company expects to pay Rs 5.83 million in contributions to defined benefit plan during the year ending December 31, 2019.

2019 2018 2016 2015 2014-------------------Rupees in thousand-------------------

18.1.11 5 year historical data on the deficit of defined benefit plan is as follows:

Present value of defined benefit obligations 42,929 35,523 28,448 22,427 20,635 Fair value of plan assets (37,098) (30,339) (23,963) (17,411) (19,806)Deficit 5,831 5,184 4,485 5,016 829

Experience adjustments

(Loss) / gain on plan assets(as percentage of plan assets) 6.02% -1.00% 1.00% 0.00% 0.00%(Gain) / loss on obligations(as percentage of obligations) 2.00% 1.00% 2.00% 5.00% -15.00%


2019 2018Number of employees

18.3 Staff strength

Number of employees as at December 31 157 136 Average number of employees during the year 147 136

19 DEFERRED TAXATION

Deferred debits arising in respect of: Provision for doubtful receivables - insurance / reinsurance receivables 26,746 25,482

Deferred credits arising due to: Accelerated tax depreciation 6,056 4,490 Unrealized gain on remeasurement of investment 1,528,257 1,103,752

1,534,313 1,108,242 1,507,567 1,082,760

20 BORROWINGS

Bank loans: Running finance 193,228 44,876 Short term advance - 150,000

193,228 194,876


18.2 Defined contribution plan - provident fund

The Company has set up a provident fund for its permanent employees and contributions were made by the Company to the Trust in accordance with the requirements of Section 218 of the Companies Act, 2017. The total charge against provident fund for the year ended December 31, 2019 was Rs 5.6 million . The net assets based on unaudited financial statements of Provident Fund as at December 31, 2019 are Rs 43.3 million out of which 91.20% are invested in different financial instruments categories as provided in Section 218 of the Companies Act, 2017 and the rules formulated therein. The above investments out of provident fund have been made in accordance with the requirements of Section 218 of the Companies Act, 2017 and the rules formulated for this purpose.

Un-audited2019 2018

Rupees in thousand

% of investment

Rupees in thousand

% of investment

Investment in Government securities 19,547 49% 19,578 60% Bank balances 10,764 28% 4,648 15% Mutual funds 9,180 23% 8,232 25%

39,491 100% 32,458 100%

1012019ANNUAL REPORT


‘The total running finance facility obtained from Habib Bank Limited under mark-up arrangement aggregates to Rs 300 million (2018: Rs 300 million). Such facility has been obtained at mark-up rate ranging from three months KIBOR plus fixed spread of 1.50% per annum, payable quarterly, on the balance outstanding. The facility is secured against pledge of 8.65 million shares of Adamjee in favor of HBL as security. The mark-up rate charged during the year on the outstanding balance ranged from 12.05% to 15.35% (2018: 7.66% to 10.38) per annum. Sub facility comprises of Short term advance which has a limit of Rs 200 million. However it has not been utilized as at December 31, 2019. Furthermore the company has also arranged another running finance facility from Habib Metro Bank Limited amounting to Rs 300 million. It has been obtained at mark-up rate ranging from 3 months kibor plus fixed spread of 1.25% payable quarterly. The facility is secured against the pledge of 1 million shares of MCB Bank Limited.

21 INSURANCE / REINSURANCE PAYABLE

This represents amounts due to insurers/reinsurers.


22 OTHER CREDITORS AND ACCRUALS

Agent commission payable 191,976 122,207 Federal excise duty / sales tax 9,836 9,813 Federal insurance fee 690 675 Accrued expenses 33,032 25,342 Other tax payable 2,737 1,565 Cash margin 80,372 45,355 Leave encashment payable 7,886 6,862 Provident fund payable 18.2 892 829 Mark-up accrued on finances under mark-up arrangements

7,052 279

Others 79,956 34,723 414,429 247,650

23 CONTINGENCIES AND COMMITMENTS

a) Contingencies

23.1 The company is contingently liable for Rs 5.858 million (2018: Rs 7.083 million) on account of claims lodged against the company but not acknowledged as debts. The management, based on advice of the legal counsels, is confident that the outcome of the cases is likely to be in favour of the company.

23.2 Guarantee issued by Habib Metro Bank Limited on behalf of the company, fixed at GBP 5,000 amounting to Rs 1.017 million (2018: Rs 0.828 million).


23.3 For tax years 2009 and 2011 to 2014, the tax authorities raised an aggregate demand of Rs 664.953 million that primarily pertains to rate of tax on dividend income. The Company had filed appeals before Appellate Tribunal Inland Revenue(‘ATIR’) against the above demands and ATIR decided the case in the favour of the Company. However, the Commissioner Inland Revenue has filed a petition against the order of ATIR in Honorable Lahore High Court and the case is now pending adjudication. The Company has not made any provision in these financial statements against the above demands as the management is confident that the ultimate outcome of the appeals would be in favour of the Company, inter alia on the basis of the advice of the legal counsel and the relevant law and the facts.

b) Commitments

These represent commitments arising from short-term and immaterial leases recognised on a straight-line basis as expense under the practical expedients applied by the Company with respect to IFRS-16. The amount of future payments under these operating leases and the period in which these payments will become due are as follows:

31, December 2019

31, December 2018

Rupees in thousand

Not later than one year 5,144,918 2,598,662 5,144,918 2,598,662



24 NET INSURANCE PREMIUM

Written gross premium 3,121,741 2,495,889 Unearned premium reserve opening 1,296,132 1,041,058 Unearned premium reserve closing (1,558,246) (1,296,132)Premium earned 2,859,627 2,240,815

Reinsurance premium ceded (2,308,580) (1,875,705)Prepaid reinsurance premium opening (1,003,893) (769,414)Prepaid reinsurance premium closing 1,148,842 1,003,893 Reinsurance expense (2,163,631) (1,641,226)

695,996 599,589

25 NET INSURANCE CLAIMS

Claims paid 437,968 470,470 Outstanding claims including IBNR-closing 25.1

& 25.2 1,176,065 964,731 Outstanding claims including IBNR-opening (964,731) (1,111,319)Claims expense 649,302 323,882

Reinsurance and other recoveries received (346,870) (398,471)Reinsurance and other recoveries in respect of outstanding claims - closing (1,006,088) (814,128)



25.1 Claim development note

The following table shows the development of fire, marine, motor and others including miscellaneous claims compared to the last four years. The disclosure goes back to the period when the earliest material claim arose for which there is still uncertainty about the amount and timing of the claims payments.

Accident year 2015 2016 2017 2018 2019-------------------Rupees in thousand-------------------

Estimate of ultimate claims costs: At the end of accident year 1,781,426 421,180 612,367 504,940 749,598 One year later 3,656,854 383,941 510,900 473,892 - Two years later 3,649,493 366,782 509,361 - - Three years later 3,643,705 368,230 - - - Four years later 3,636,419 - - - -

Current estimate of cumulative claims 3,636,419 368,230 509,361 473,892 749,598

Cumulative payments to date (3,433,874) (298,451) (448,915) (318,213) (254,238)

Liability recognized in the statement of financial position 202,545 69,779 60,446 155,679 495,360


25.2 This includes the following related parties balances:

NameNishat Mills Limited (Investor) 5,491 2,026 Nishat Power Limited (due to common directorship) 457 82,865 Nishat Hospitality (Pvt.) Limited (due to common directorship) 39 8 Nishat Dairy (Pvt.) Limited (due to common director-ship) 129 20 Nishat Hotels and Properties Limited (due to common directorship)

162 21,220

Nishat Paper Product Company Limited (due to com-mon directorship)

3,506 8


Reinsurance and other recoveries in respect of outstanding claims - opening 814,128 971,912 Reinsurance expense (538,830) (240,687)

110,472 83,195



D.G. Khan Cement Company Limited (other related party) 6,469 4,009 Hyundai Nishat Motor (Private) Limited 29,968 - Pakistan Aviators & Aviation (Pvt) Ltd. 569 - Nishat (Chunian) Limited 345 - Nishat Linen (Pvt) Limited 13 -

47,148 110,156

26 NET COMMISSION EXPENSE

Commission paid or payable 239,940 186,262 Deferred commission expense - opening 94,261 82,532 Deferred commission expense - closing (110,933) (94,261)Net commission 223,268 174,533

Commission received or recoverable (221,791) (176,697)Unearned reinsurance commission - opening (80,758) (71,125)Unearned reinsurance commission - closing 92,208 80,758 Commission from reinsurers (210,341) (167,064)

12,927 7,469

27 MANAGEMENT EXPENSES

Employee benefit cost 27.1 164,286 131,817 Travelling expenses 2,773 1,992 Advertisements and sales promotion 95 6 Printing and stationery 4,638 3,673 Depreciation on operating assets 6.1 20,063 16,631 Depreciation on investment property 8.1 2,973 1,028 Rent, rates and taxes 6,623 5,365 Legal and professional- business related 6,551 4,948 Electricity, gas and water 6,120 4,449 Entertainment 4,860 3,656 Vehicle running expenses 22,485 16,204 Office repairs and maintenance 7,588 5,015 Bank charges 1,858 2,562 Postages, telegrams and telephone 5,350 4,083 Annual supervision fee SECP 2,995 3,120 Provision for doubtful receivables 12.2

&12.3 4,360 5,189 Service charges 5,074 3,142 Miscellaneous 1,498 1,748

270,190 214,628

27.1 Employee benefit cost

Salaries, allowances and other benefits 153,879 125,709 Charges for post employment benefit plan- Gratuity 4,782 4,074 Charges for post employment benefit plan- Provident fund 5,625 2,034

164,286 131,817




28 INVESTMENT INCOME

Income from equity securities

Available-for-sale Dividend income 28.1 1,028,353 984,316

Income from debt securities

Held to maturity Return on debt securities 9,440 6,660 Net realized gains on investments 1,037,793 990,976

Available-for-sale financial assets Realized gains on: - Equity securities 484 5,464 Total investment income 1,038,277 996,440

Reversal of impairment in value of available-for-sale securities - Equity securities - -Investment related expenses (1,062) (1,359)

1,037,215 995,081

28.1 This includes dividend income from the following related parties:

D.G. Khan Cement Company Limited (other related party) 229 971 Pakgen Power Limited (due to common directorship) 9,612 7,060 Lalpir Power Limited (due to common directorship) 6,837 6,837 Nishat Chunian Limited (due to common director-ship)

1,352 -

18,030 14,868

29 OTHER INCOME

Return on bank balances 48,297 20,344 Gain on sale of operating assets - 371 Liabilities written back - 6,226 Miscellaneous 142 696

48,439 27,637




30 OTHER EXPENSES

Legal and professional fee other than business related 3,600 3,600 Auditor's remuneration 30.1 3,225 2,829 Donations - 649 Subscription 2,821 2,122 Insurance expense 2,661 2,212 Professional charges 100 100 Others 100 405

12,507 11,917

30.1 Auditor’s remuneration

Fee for statutory audit 990 825 Fee for interim review 445 355 Fee for audit of gratuity fund 103 64 Special certifications and sundry advisory services 295 289 Tax services 1,260 1,071 Out of pocket 132 225

3,225 2,829

31 FINANCE COSTS

Markup on running finance 24,754 9,253

24,754 9,253

32 TAXATION

For the year Current 393,818 398,492 Deferred 762 711

394,580 399,203 For prior years 32.1 - 38,804 Current 394,580 438,007

32.1 This represents provision for super tax as per the rates specified in Division IIA of Part I of the First Schedule to the Income Tax Ordinance, 2001.



2019 2018% %

32.2 Relationship between tax expense and accounting profit

Numerical reconciliation between the average effective tax rate and the applicable tax rate is as follows :

Applicable tax rate 29.00 29 Effect of: - Prior year tax - 2.95 - Super tax - 1.99 - Change in tax rate and others 0.11 (0.03)Effective tax rate 29.11 33.91


33 EARNINGS PER SHARE

Profit (after tax) for the year- Rupees in thousand 959,393 853,828

Weighted average number of ordinary shares- Number 68,063 68,063

Earnings per share - (basic / diluted)- Rupees 14.10 12.54

There is no dilutive effect on basic earnings per share.

34 COMPENSATION OF DIRECTORS AND EXECUTIVES

34.1 Aggregate amounts charged in the accounts for remuneration, including all benefits to Chief Executive Officer, Directors and Executives of the Company are as follows:


Chief Executive Directors Executives2019 2018 2019 2018 2019 2018

-------------------Rupees in thousand-------------------Managerial remuneration 5,519 4,928 - - 7,860 6,913 Leave encashment 690 616 - - 982 864 Bonus 2,070 1,848 - - 2,947 2,592 Charge for defined benefit plan 460 411 - - 655 576 Contribution to defined contribution plan 552 493 - - 786 691 Rent and house maintenance 2,208 1,971 - - 3,144 2,765 Utilities 552 493 - - 786 691 Medical 319 79 - - 898 644 Others 1,000 910 - - 2,410 2,168 Total 13,370 11,749 - - 20,468 17,904

Number of persons 1 1 5 5 4 4


34.2 Executive means an employee, other than the Chief Executive and Directors, whose basic salary exceeds twelve hundred thousand rupees in a financial year

34.3 Chief Executive and some of the executives of the Company are provided with Company maintained cars.

35 RELATED PARTY TRANSACTIONS

The related parties include the Investor, related parties on the basis of common directorship, group companies, key management personnel including directors and post employment benefit plans. The Company in the normal course of business carries out transactions with various related parties. Amounts due from and to related parties are shown under receivables and payables. Significant related party transactions have been disclosed in respective notes in these financial statements other than the following:


Year end balances(i) Post employment benefit plans

Payable to gratuity fund 5,831 5,184 Payable to provident fund 892 829

6,723 6,013

(ii) Key management personnel

Advances against salaries 310 259

Transactions during the year (i) Related parties based on common directorship

Premium underwritten 1,161,926 954,406 Claims paid 68,233 77,704 Dividends paid 51,141 51,141 Payment in respect of services 5,009 755

1,286,309 1,084,006

(ii) Post employment benefit plans

Charge in respect of gratuity fund 4,782 4,074 Charge in respect of provident fund 5,625 4,988 Contribution to gratuity fund 5,184 4,485 Contribution to provident fund 11,251 10,080

26,842 23,627

(iii) Key management personnel

Employee benefits 38,038 27,839 Asset sold - 1,405 Dividends paid 45,247 45,247



36 SEGMENT REPORTING

A business segment is a group of assets and operations engaged in providing services that are subject to risk and returns that are different from those of other business segments. The Company has identified four (2018: four) primary business segments for reporting purposes in accordance with the requirements of the Insurance Ordinance, 2000 and the Insurance Rules, 2017. These include fire, marine, aviation and transport, motor and miscellaneous class of business/operating segment. As per Insurance Rules, 2017, information for other segments under which business is less than 10%, is classified under miscellaneous class of operating/business segment.

Assets and liabilities, wherever possible, have been assigned to each reportable segment based on specific identification or allocated on the basis of the gross premium written by the segments.


2019Fire and property

damageMarine, aviation

and transport Motor Miscellaneous Total

-------------------------------- Rupees in thousand --------------------------------

Premium receivable (inclusive of federal insurance fee, federal exciseduty and administrative surcharge) 2,493,636 138,909 481,561 381,849 3,495,955 Federal excise duty (249,294) (14,045) (49,157) (38,623) (351,119)Federal insurance fee (16,397) (924) (3,233) (2,540) (23,094)Gross written premium (inclusive of administrative surcharge) 2,227,945 123,940 429,171 340,686 3,121,742

Gross direct premium 1,412,837 119,910 422,144 335,746 2,290,637 Facultative inward premium 810,337 - - - 810,337 Administrative surcharge 4,770 4,030 7,027 4,940 20,767

2,227,944 123,940 429,171 340,686 3,121,741

Insurance premium earned 2,028,081 124,781 390,682 316,084 2,859,628 Insurance premium ceded to reinsurers (1,616,130) (92,184) (183,075) (272,243) (2,163,632)Net insurance premium 411,951 32,597 207,607 43,841 695,996 Commission income 102,128 32,333 43,704 32,177 210,342 Net underwriting income 514,079 64,930 251,311 76,018 906,338

Insurance claims (340,817) (8,920) (169,181) (130,384) (649,302)Insurance claims recovered from reinsurers 328,856 12,831 86,689 110,454 538,830 Net claims (11,961) 3,911 (82,492) (19,930) (110,472)

Commission expense (123,645) (28,175) (43,078) (28,371) (223,269)Management expenses (193,707) (10,448) (36,782) (29,253) (270,190)Net insurance claims and expenses (329,313) (34,712) (162,352) (77,554) (603,931)

Underwriting results 184,766 30,218 88,959 (1,536) 302,407



2018Fire and property

damageMarine, aviation and transport Motor Miscellaneous Total

-------------------------------- Rupees in thousand --------------------------------

Premium receivable (inclusive of federal insurance fee, federal exciseduty and administrative surcharge) 2,007,421 113,477 398,524 282,197 2,801,619 Federal excise duty (186,293) (12,636) (53,877) (34,282) (287,088)Federal insurance fee (11,778) (998) (3,434) (2,431) (18,641)Gross written premium (inclusive of administrative surcharge) 1,809,350 99,843 341,213 245,484 2,495,890

Gross direct premium 1,172,048 96,511 336,913 241,866 1,847,338 Facultative inward premium 632,809 - - - 632,809 Administrative surcharge 4,493 3,331 4,301 3,618 15,743

1,809,350 99,842 341,214 245,484 2,495,890

Insurance premium earned 1,594,352 92,713 304,944 248,807 2,240,816 Insurance premium ceded to reinsurers (1,221,386) (68,605) (136,607) (214,629) (1,641,227)Net insurance premium 372,966 24,108 168,337 34,178 599,589 Commission income 84,129 22,725 30,220 29,991 167,065 Net underwriting income 457,095 46,833 198,557 64,169 766,654

Insurance claims (63,197) (7,299) (133,915) (119,471) (323,882)Insurance claims recovered from reinsurers 53,340 7,642 71,101 108,604 240,687 Net claims (9,857) 343 (62,814) (10,867) (83,195)

Commission expense (99,151) (20,472) (33,923) (20,988) (174,534)Management expenses (155,590) (8,586) (29,342) (21,110) (214,628)Net insurance claims and expenses (264,598) (28,715) (126,079) (52,965) (472,357)

Underwriting results 192,497 18,118 72,478 11,204 294,297

2019Rupees in thousand

Net investment income 1,037,215 Other income 48,439 Other expenses (12,507)Finance costs (24,754)Loss before taxation from window takaful operations - Operator's Fund 3,163 Profit before tax 1,353,963

Segment assets - Conventional 2,453,098 95,289 351,505 627,666 3,527,558 Segment assets - Takaful Operator's Fund 26,511 1,430 5,033 4,004 36,978 Unallocated assets - Conventional 18,206,581 Unallocated assets - Takaful Operator's Fund 49,209

21,820,326 Segment liabilities - Conventional 2,026,843 61,338 363,950 646,734 3,098,865 Segment liabilities - Takaful Operator's Fund 26,551 1,432 5,042 4,009 37,034 Unallocated liabilities - Conventional 3,766,784

6,902,683



2018Rupees in thousand

Net investment income 995,081 Other income 27,637 Other expenses (11,917)Finance costs (9,253)Loss before taxation from window takaful operations - Operator's Fund (4,010)Profit before tax 1,291,835

Segment assets - Conventional 2,449,282 98,894 352,415 631,786 3,532,377 Segment assets - Takaful Operator's Fund 11,276 2,214 22,839 330 36,659 Unallocated assets - Conventional 15,939,562 Unallocated assets - Takaful Operator's Fund 39,502

19,548,100 Segment liabilities - Conventional 1,612,989 76,356 301,966 517,871 2,509,182 Segment liabilities - Takaful Opera-tor's Fund 6,639 620 1,416 177 8,852

Unallocated liabilities - Conventional 2,608,235 5,126,269

As the operations of the company are carried out in Pakistan, information relating to geographical segment is not considered relevant.

36.1 Information about major customers

Included in the net insurance premium is premium from three (2018: three) customers of the Company from the fire and property damage (2018: fire and property damage) segment which represents approximately Rs 1,677.641 million (2018: Rs 782.965 million) of the Company’s total gross premium written. The Company’s revenue from other segments is earned from a large mix of customers.

Held to maturity debt

securities

Available-for-sale equity securities

Rupees in thousand

37 MOVEMENT IN INVESTMENTS

At the beginning of previous year - January 1, 2018 75,032 16,968,488 Additions 64,000 700,640 Disposals (sale & redemptions) (64,000) (504,477)Fair value net gains (excluding net realized gains) - (3,224,303)Amortization of premium (425) - At end of current year - Dec 31, 2018 74,607 13,940,348

At beginning of current year - January 1, 2019 74,607 13,940,348 Additions 200,000 1,390,539 Disposals (sale & redemptions) (205,000) - Fair value net gains (excluding net realized gains) - 853,249 Amortization of discount 66 - At end of current year - December 31, 2019 69,673 16,184,136



37.1 Fair value measurement of financial instruments - IFRS 9

Following is the fair value of financial assets as on December 31, 2019 under IFRS 9 classifications and the change in their fair value during the year ended December 31, 2019:

Financial instruments with contractual cash flows that meet the SPPI criteria, excluding

those held for trading

Amortised cost

Fair value through OCI Total

Other finan-cial instru-

ment*Rupees in thousand

Pakistan Investment Bonds

Opening fair value - December 31, 2018 74,607 - 74,607 - AdditionsUnwinding on debt securities 66 - 66 - Disposals (5,000) - (5,000) -

Closing fair value - December 31, 2019 69,673 - 69,673 -

Shares in listed / unlisted equity securities

Opening fair value - December 31, 2018 - - - 13,933,858 Additions - - - 1,390,539 Increase in fair value - net - - - 853,326 Reversal of impairment - - - - Disposals - - - - Closing fair value - December 31, 2019 - - - 16,177,723

Mutual fund investments

Opening fair value - December 31, 2018 - - - 6,490 Additions - - - 200,000 Increase in fair value - net - - - (76)Reversal of impairment - - - - Disposals - - - (200,000)Closing fair value - December 31, 2019 - - - 6,414

* Other financial instruments are measured at fair value through other comprehensive income.



38 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Underlying the definition of fair value is the presumption that the Company is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

IFRS 13’Fair Value Measurement’ requires the Company to classify fair value measurements and fair value hierarchy that reflects the significance of the inputs used in making the measurements of fair value hierarchy has the following levels:

- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)

- Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, derived from prices) (Level 2)

- Inputs for the asset or liability that are not based on observable market data (that is, unadjusted) inputs (Level 3)

Transfer between levels of the fair value hierarchy are recognized at the end of the reporting period during which the changes have occurred.


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Movement in the above mentioned assets has been disclosed in note 8 to these financial statements and movement in fair value reserve has been disclosed in the statement of changes in equity. There were no transfers between Levels 1 and 2 & Levels 2 and 3 during the year and there were no changes in valuation techniques during the years. Since the ordinary shares of Nishat Hotels and Properties Limited are not listed, an investment advisor engaged by the Company has estimated a fair value of Rs 16.37 per ordinary share as at December 31, 2019 through a valuation technique based on its discounted cash flow analysis. Hyundai Nishat Motor (Private) Limited’s ordinary shares are also not listed and since its operations have not commenced as of the reporting date, management assesses the fair value of such investment equal to its cost. The Company’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. Changes in level 2 and 3 fair values are analysed at the end of each reporting period during the annual valuation discussion between the Chief Financial Officer and the investment advisor. As part of this discussion, the investment advisor presents a report that explains the reason for the fair value movements.

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Specific valuation techniques used to value financial instruments include:

- Quoted market prices or dealer quotes for similar instruments.

- The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.

- Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values.




39 MANAGEMENT OF INSURANCE AND FINANCIAL RISK

39.1 Insurance risk

The risk under any one insurance contract is the probability that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, the risk is random and therefore unpredictable. The principal risk that the Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random, and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques.

The Company manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling. The underwriting strategy aims to minimise insurance risks with a balanced mix and spread of business classes and by observing underwriting guidelines and limits. The Company underwrites mainly fire, marine, motor and other miscellaneous business. These classes of insurance are generally regarded as short term insurance contracts where claims are normally intimated and settled within a short time span. This helps to mitigate the insurance risk.

Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Company has the right not to renew individual policies, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. For large risks, particularly in property segment of business, risk inspections are carried out before accepting the risks. Similarly, in case of large risks, annual renewals are also preceded by on-site surveys. Where needed, risk mitigation measures are identified and communicated to the clients to improve the risk to an acceptable level.

Reinsurance arrangements in place include treaty and facultative arrangements, on proportional and non-proportional basis and also include catastrophe cover. The effect of such reinsurance arrangements is that the Company may not suffer ultimate net insurance losses beyond the Company’s risk appetite in any one year.

The Company’s arrangement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor the operations of the Company are substantially dependent upon any single reinsurance contract. The Company obtains reinsurance cover only from companies with sound financial health.


39.1.1 Frequency and severity of claims

The frequency and severity of claims can be affected by several factors like political violence, environmental and economical, atmospheric disturbances, natural disasters, concentration of risks, civil riots etc. The Company manages these risk through the measures described above. The Company has limited its exposure to catastrophic and riot events by use of reinsurance arrangements.

Gross aggregate exposure

Maximum reinsurance cover Net

2019 2018 2019 2018 2019 2018-------------------Rupees in thousand-------------------

Fire and property damage 819,963,249 591,755,475 782,824,290 549,617,524 37,138,959 42,137,951

Marine, aviation and transport 24,789,469 61,909,240 19,736,467 48,407,231 5,053,002 13,502,009

Motor 13,248,743 7,777,757 8,176,082 4,920,572 5,072,661 2,857,185

Others including miscellaneous 66,223,791 47,610,666 56,539,158 43,482,740 9,684,633 4,127,926

924,225,252 709,053,138 867,275,997 646,428,067 56,949,255 62,625,071


Statement of Age-wise Breakup of unclaimed Insurance Benefits

Particulars Age Wise BreakupTotal

Amount“1 to 6

Months”“7 to 12 Months”

“13 to 24 Months”

“25 to 36 Months”

“Beyond 36 Months”

-------------------Rupees in thousand-------------------

Claims not encashed 9,402 6,498 1,061 475 522 846

Total 9,402 6,498 1,061 475 523 846

39.1.2 Concentration of insurance risk

The spread of risk is of extreme importance to optimize benefits. There are a number of parameters which are significant in assessing the accumulation of risks with reference to the geographical location. The Company measures concentration of insurance risk by class of business as summarized below:



Gross claims paid Reinsurance recoveries Net2019 2018 2019 2018 2019 2018

-------------------Rupees in thousand-------------------Fire and property damage 228,018 314,035 219,241 301,810 8,777 12,225

Marine, aviation and transport 12,262 12,680 8,479 9,237 3,783 3,443

Motor 153,293 116,791 80,701 62,087 72,592 54,704

Others including miscellaneous 44,394 26,965 38,449 25,337 5,945 1,628

437,967 470,471 346,870 398,471 91,097 72,000

For the analysis of insurance risk concentration in fire, marine, motor and miscellaneous segments, the shared characteristic has been taken as the territory (Pakistan). Cash outflows involved for settlement of incurred insurance liabilities may vary significantly as compared to the total contractual liabilities under insurance contracts. Historical data for such outflows is given below:

Risk assessment is carried out on a regular basis for the evaluation of physical hazards associated with commercial / industrial / residential occupation of the policy holders. Any one risk shall be defined to never be less than the property contained within an area which is separated from another property by sufficient distance to confine insured damage from uncontrolled fire and explosion under the most adverse conditions to that one area. Details regarding the fire separation / segregation with respect to manufacturing processes, storage, utilities, etc. are extracted from the layout plan of the insured facility. Reference is also made to the standard construction specifications as laid down by IAP (Insurance Association of Pakistan). For instance, the presence of Perfect Party Walls, Double Fire Proof Iron Doors, physical separation between the buildings within the insured’s premises.

Concentration of various insurance risks, with reference to geocoding, are monitored through MIS reports generated from the IT system.

The Company follows a policy of obtaining sufficient reinsurance covers to mitigate the accumulation of risk in case of catastrophic events.

39.1.3 Reinsurance risk

Reinsurance ceded does not relieve the Company from its obligation to policy holders and as a result the Company remains liable for the portion of outstanding claims reinsured to the extent that reinsurer fails to meet the obligation under the reinsurance agreement.

In common with other insurance companies, in order to minimize the financial exposure arising from large claims, the Company in the normal course of business, enters into agreements with a panel of reinsurers for reinsurance purposes.

To minimize its exposure to significant losses from reinsurer insolvencies, the Company considers the credit rating of the reinsurers before finalizing treaty agreements with them every year. Furthermore, the Company obtains reinsurance from a number of reinsurers, who are dispersed over several geographical regions, to spread the concentration of its reinsurance risk to different geographical regions.


39.1.4 Sources of uncertainty in estimation of future claim payments

The key source of estimation uncertainty at the statement of financial position date relates to valuation of outstanding claims, whether reported or not, and includes expected claims settlement costs. Considerable judgment by management is required in the estimation of amounts due to policyholders arising from claims made under insurance contracts. Such estimates are necessarily based on assumptions about several factors involving varying and possibly significant degrees of judgment and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated liabilities. Qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example one-off occurrence, changes in market factors such as public attitude to claiming and economic conditions. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates.

In particular, estimates have to be made both for the expected ultimate cost of claims reported at the statement of financial position date and for the expected ultimate cost of claims incurred but not reported (IBNR) at the statement of financial position date. The details of estimation of outstanding claims (including IBNR) are given under note 3.20.

39.1.5 Process used to decide on assumptions

The process used to determine the assumptions for calculating the outstanding claim reserve is intended to result in neutral estimates of the most likely or expected outcome. Each notified claim is assessed on a separate, case to case basis with due regard to claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Case estimates are reviewed regularly and are updated as and when new information is available. Reinsurance recoveries against outstanding claims are recognized on occurrence of the related claim liability. These are recorded as an asset and measured at the amount expected to be received.

The Company engages an actuary to estimate the IBNR as per the SECP Circular No. 9 of 2016, “SEC guidelines for estimation of Incurred but not Reported claim reserve, 2016”. The Guidelines require that estimation for provision for claims incurred but not reported for each class of business, by using prescribed Method “Chain Ladder method” and other alternate method as allowed under the provisions of the Guidelines. The Chain Ladder Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level to derive an IBNR estimate.

39.1.6 Changes in assumptions

There have been no changes in assumptions, and the same have been consistently applied.



Particulars Profit before taxation Shareholders’ equity2019 2018 2019 2018

Rupees in thousandEffect of 10% increase/(decrease) in amount of claims:

Fire and property damage 1,251 986 888 700

Marine, aviation and transport (327) (34) (232) (24)

Motor 8,251 6,281 5,858 4,460

Miscellaneous 2,010 1,087 1,427 772

11,185 8,320 7,941 5,908

39.2 Financial risk

Financial risk factors

The Company’s activities expose it to a variety of financial risks, including the effects of changes in market interest rates such as KIBOR, credit and liquidity risk associated with various financial assets and liabilities, respectively, and cash flow risk associated with accrued interests in respect of borrowings as referred to in note 20 to the financial statements. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance.

The Board of Directors (the Board) has overall responsibility for establishment and oversight of the companies risk management framework. There are management committees for developing and monitoring the risk management policies. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity.

The Company finances its operations through equity, borrowings and management of working capital. The Company’s overall risk management procedures to minimise the potential adverse effects of financial market on the Company’s performance are as follows:


39.1.7 Sensitivity analysis

The Company believes that the claim liabilities under insurance contracts outstanding at the year end are adequate. However, these amounts are not certain and actual payments may differ from the claims liabilities provided in the financial statements. The Company enters into short term insurance contracts, therefore, it does not assume any significant impact of changes in market conditions on unexpired risks. The risks associated with the insurance contracts are complex and subject to a number of variables which complicate the quantitative sensitivity anal-ysis. However, some results of sensitivity testing are set out below, showing the impact on profit before tax (net of reinsurance) and shareholders’ equity:



(a) Credit risk and concentration of credit risk

Credit risk represents the accounting loss that would be recognised at the reporting date, if counter parties failed completely to perform as contracted. The Company’s credit risk is primarily attributable to its receivables from other insurers/reinsurers, receivable from customers and its balances at banks. The credit risk on liquid funds is limited because the counter parties are banks with reasonably high credit ratings.

Concentration of credit risk occurs when a number of counter parties have a similar type of business activities. As a result, any change in economic, political or other conditions would effect their ability to meet contractual obligations in similar manner. The Company’s credit risk exposure is not significantly different from that reflected in the financial statements. The management assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. For banks and financial institutions, only independently rated parties with a strong credit rating are accepted. The management monitors and limits the Company’s exposure to credit risk through monitoring of client’s exposure and review and conservative estimates of provisions for doubtful assets, if any. The management is of the view that it is not exposed to significant concentration of credit risk as it’s financial assets are adequately diversified in entities of sound financial standing, covering various industrial sector segments.

The Company monitors the credit quality of its financial assets with reference to historical performance of such assets and available external credit ratings. The carrying amount of financial assets represents the maximum credit exposure, as specified below:


Financial assets

Cash and bank 268,560 233,108 Investments 16,253,811 14,014,955 Insurance/reinsurance receivables 2,289,531 2,176,640 Accrued investment income 4,673 2,971 Reinsurance recoveries against outstanding claims 1,006,088 814,128 Loans and other receivables 30,295 13,780

19,852,958 17,255,582

As of December 31, 2019, premium due but unpaid and amount due from other insurers/reinsurers of Rs 2,289.530 million (2018: Rs 2,176.640 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. An analysis of the age of premiums due but unpaid and amount due from other insurers/reinsurers that are past due but not impaired is as follows:


- Up to one year 1,296,717 1,480,968 - Past one but less than three years 554,360 281,163 - Over three but less than five years 192,118 314,047 - More than five years 246,336 100,462

2,289,531 2,176,640


The management estimates the recoverability of premium due but unpaid and amounts due from other insurers/reinsurers on the basis of financial position and past history of its customers based on the objective evidence that it shall not receive the amount due from the particular customer. The provision is written off by the Company when it expects that it cannot recover the balance due. Any subsequent repayments in relation to amount written off, are credited directly to profit and loss account.

(b) Liquidity risk

Liquidity risk reflects an enterprise’s inability in raising funds to meet commitments. Liquidity risk represents the risk that the Company shall encounter difficulties in meeting obligations associated with financial liabilities. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the Company’s businesses, the Company’s finance department maintains flexibility in funding by maintaining availability under committed credit lines. The Company follows an effective cash management and planning policy to ensure availability of funds and to take appropriate measures for new requirements.

The Company manages liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. At December 31, 2019, the Company had Rs 600 million (2018: Rs 300 million) of available borrowing limits from financial institutions and Rs 268.554 million (2018: Rs 233.097 million) of cash and bank balances.

The table below provides the maturity analysis of the Company's liabilities as at statement of financial position date. All liabilities are presented on a contractual cash flow basis except for the provision of outstanding claims (including IBNR), which are presented with their expected cash flows.

(c) Market risk

Reinsurance assets bearing credit risk together with their credit rating are summarized below :

RatingAmounts due

from reinsurers

Reinsurance recoveries

against outstanding

claims

Other reinsurance

assets2019 2018

------------------------------ Rupees in thousand------------------------------

A and above (including Pakistan Reinsurance Company Limited) 421,159 558,576 187,028 1,166,763 1,215,944 A- 3,945 215,257 120,812 340,014 55,044 BBB 797 29,148 - 29,945 13,627 Others 173,369 203,106 841,002 1,217,477 1,260,072

599,270 1,006,087 1,148,842 2,754,199 2,544,687



Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of change in market prices such as interest rates, foreign exchange rates and equity prices.


The credit quality of company’s bank balances and deposits can be assessed with reference to external credit ratings as follows:

Rating Rating Rating Short term Long term Agency 2019 2018

Rupees in thousand

Current and other accounts

Albaraka Islamic Bank A-1 A PACRA 129 2,663 Allied Bank Limited A1+ AAA PACRA 902 35 Askari Bank Limited A1+ AA+ PACRA 5 5 Bank Alfalah Limited A1+ AA+ PACRA 8,354 4,023 Dubai Islamic Bank Limited A-1+ AA JCR-VIS 81,434 44,960 Faysal Bank Limited A1+ AA PACRA 4,635 869 Habib Bank Limited A-1+ AAA JCR-VIS 447 421 Habib Metropolitan Bank A1+ AA+ PACRA - 6,419 JS Bank Limited A1+ AA- PACRA 15,542 7,351 MCB Bank Limited A1+ AAA PACRA 120,045 80,424 MCB Islamic Bank Limited A1 A PACRA 14 4,285 Silk Bank Limited A-2 A- PACRA 211 211 Soneri Bank Limited A1+ AA- PACRA 956 1,884 Summit Atlas Bank A-3 BBB- JCR-VIS 2 7 Summit bank A-3 BBB- JCR-VIS 157 99 National Bank of Pakistan A1+ AAA PACRA 1,272 1,574 Khushhali Microfinance Bank A-1 A+ PACRA 6,109 234 BANK OF AZAD JAMU AND KASHMIR N/A 399 - Apna Micro Finance Bank Ltd A3 BBB+ PACRA 8,821 10 The Punjab Provincial Co-Operative Bank Ltd, N/A 214 -

Samba Bank Ltd, A-1 AA PACRA 1,040 - United Bank Limited A-1+ AAA PACRA 8,516 13,283

Deposits with State Bank of Pakistan Not

Applicable 9,350 64,350 268,554 233,097

Rating

Rating 2019 2018 Agency Rupees in thousand

Mutual Funds

JS Large Capital Fund AM2 JCR-VIS 460 460 460 460

Credit Risk exposure for assets that pass the SPPI test - IFRS 9

The following table represents the Company’s exposure to credit risk on financial assets that meet the SPPI criteria

AA A BBB Unrated Total Agency Rupees in thousand

Pakistan Investment Bonds - - - 69,673 69,673 69,673 69,673


2019 Carrying amount

Less than one year

One to five years

More than five years

----------------Rupees in thousand----------------Financial liabilities

Outstanding claims including IBNR 1,176,065 1,176,065 - - Insurance/reinsurance payables 1,730,249 1,075,766 599,839.00 54,644.00 Accrued expenses 33,032 33,032 - - Other creditors and accruals 381,397 381,397 - - Borrowings 193,228 193,228 - -

3,513,971 2,859,488 - -


2018 Carrying amount

Less than one year

One to five years

More than five years

----------------Rupees in thousand----------------Financial Liabilities

Outstanding claims including IBNR 964,731 964,731 - - Insurance/reinsurance payables 1,068,131 1,068,131 - - Accrued expenses 25,342 25,342 - - Other creditors and accruals 222,308 222,308 - - Borrowings 194,876 194,876 - -

2,475,388 2,475,388 - -

The Company’s interest rate risk arises from short term borrowings. These borrowings issued at variable rates expose the Company to cash flow interest rate risk. The Company analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions.

The Company limits market risk by maintaining a diversified portfolio and by continuous monitoring of developments in Government securities, equity and mutual funds units. In addition, the Company actively monitors the key factors that affect the underlying value of these securities.

(i) Cash flow and fair value interest rate risk

Interest/yield rate risk arises from the possibility that changes in interest rate will affect the value of financial instruments. Yield risk is the risk of decline in earnings due to adverse movement of the yield rate. The Company is exposed to interest/yield rate risk for certain deposits with the banks.

As the Company has no significant floating interest rate assets, the Company’s income is substantially independent of changes in market interest rates.


(ii) Other price risk

Other price risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

The Company is exposed to equity securities price risk because of investments held by the Company and classified as available-for-sale. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Board. The primary goal of the Company’s investment strategy is to maximise investment returns.

The Company’s investments in equity of other entities that are publicly traded are included in the Pakistan Stock Exchange.

2019 2019 2018 2018 2019 2019 2018 2018 Effective interest rate Rupees in thousand

Fixed rate instruments

Financial assets

Bank balances - saving accounts 6.2% 6.2% 235,372 142,870 Investments - Government securities 12.0% 12.0% 6,000 11,000 Total Exposure 241,372 153,870

Financial liabilities

Variable rate instruments

Borrowings 13.7% 9.0% 193,228 194,876 Investments - Government securities 14.8% 8.6% 64,000 64,000 Total Exposure 257,228 258,876


Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit and loss account. Therefore, a change in interest rate at the statement of financial position date would not affect profit or loss of the Company.

Cash flow sensitivity analysis for variable rate instruments

If interest rates on borrowings, at the statement of financial position date, fluctuate by 1% higher/lower with all the other variables held constant, profit before taxation for the year would have been lower/higher by Rs 0.147 million (2018: Rs 0.093 million) and shareholders equity would have been lower/higher by Rs 0.104 million (2018: Rs 0.061 million), mainly as a result of higher/lower interest expense on floating rate borrowings.


Impact on pre-tax profit Impact on other components of equity

2019 2018 2019 2018

Pakistan Stock Exchange Limited - - 1,365,383 1,266,319

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide return for shareholders and to maintain an optimal capital structure to reduce the cost of capital.

The Company’s objective when managing capital are:

- to be in compliance with the paid-up capital requirement set by the SECP. The Company’s current paid-up capital is in excess of the limit prescribed by the SECP vide SRO 828(I)2015.

In addition, the Company is also required to maintain minimum solvency in accordance with the rules and regulations set by the SECP which are fully met by the Company.

- to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders

- to maintain strong ratings and provide an adequate return to shareholders; and

- to ensure a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The Company manages the capital structure in context of economic conditions and the risk character-istics of the underlying assets. In order to maintain or adjust the capital structure, the Company may, for example, adjust the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debts.


The table below summarises the impact of increases/decreases of the KSE-100 index on the Company’s pre-tax profit for the year and on equity. The analysis is based on the assumption that the KSE-100 index had increased/decreased by 10% with all other variables held constant and all the Company’s equity investments moved according to the historical correlation with the index:

As at December 31, 2019, the Company had no investments classified as at fair value through profit or loss.

(iii) Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises mainly where receivables and payables exist due to transactions with foreign reinsurers. The Company is not exposed to any significant currency risk at the statement of financial position date.

(d) Capital management


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40 SUBSEQUENT EVENT- NON ADJUSTING EVENT

The Board of Directors has proposed a final dividend for the year ended December 31, 2019 of Rs 2.50 per share (2018: Rs 2.5 per share), amounting to Rs 170.156 million (2018: Rs 170.156 million) at their meeting held on March 09, 2020 for approval of the members at the Annual General Meeting to be held on March 30, 2020. Furthermore, the Board of Directors have proposed to purchase additional shares of Nishat Hotel and Properties Limited, an associated Company, upto a maximum amount of Rs. 900.00 Million for approval of the members at the Annual General Meeting to be held on March 30, 2020.

41 DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue on March 09, 2020 by the Board of Directors of the Company.

42 CORRESPONDING FIGURES

Figures in these financial statements have been rounded off to the nearest thousand rupees.



Financial StatementsFOR THE YEAR ENDED DECEMBER 31, 2019


SHARIAH ADVISOR’S REPORT TO THE BOARD OF DIRECTORSFOR THE YEAR ENDED DECEMBER 31, 2019

Being a Shari’ah Advisor of Security General Company Limited (Window Takaful Operations) it is my responsibility to ensure that the participant membership documents, underwriting procedures, Re-Takaful arrangements, and financial activities related to the Participants and stakeholders should be compliant as per Shari’ah rulings.

On the other hand it is the responsibility of “SGI WTO” management to follow the Takaful rules and guidelines set by the Shari’ah Advisor and to take prior approval of Shari’ah Advisor for all policies and services being offered by the “SGICL WTO”.

As Shari’ah Advisor of “SGICL WTO” I confirm that:

i. Underwriting, investments and financial transactions undertaken by the “SGICL WTO” for the year ended 31 December 2019, were in accordance with Takaful Rules 2012 and Shariah Guidelines issued by Shariah Advisor.

ii. Appropriate accounting policies and basis of measurement have been consistently applied in preparation of the financial statements of “Participant Takaful Fund (Waqf Fund)” and “Operator Fund”.

iii. Conducting Training and Development is an imperative for understanding the principles of Takaful and its practical outline. For this purpose “SGICL WTO” fulfilled its responsibility and arranged Takaful training sessions as per requirement of SECP circular no.37 of 2015.

iv. Shariah Compliance review has been conducted and related matters have been discussed with concerned staff.

v. Any cases which were required to be consulted in accordance with the Shariah and Takaful Rules have been discussed and duly resolved.

I concluded my report with the words that Allah Almighty grant “SGICL Window Takaful Operations” remarkable success and help the entire team at every step and keep away from every hindrance and difficulty.

“And Allah Knows Best”

_________________________Mufti Muhammad Umar.Shariah Advisor Window Takaful Operations SGI Insurance Company Limited.Date :09 March 2020.

، ودعب ی�ف بمع� �به ا اله وااحص� ی�ف ویلع اء وارملسل� ی ب

فداال� سی یلع واالسلم واالصلة ی�ف لم�

رب ااعل اہلل ، ودعبادمحل ی�ف بمع� �به ا اله وااحص� ی�ف ویلع اء وارملسل� ی ب

فداال� سی یلع واالسلم واالصلة ی�ف لم�

رب ااعل اہلل ادمحل


To the members of Security General Insurance Company Limited-Window Takaful Operations

Report on the Audit of the Financial Statements Opinion

We have audited the annexed financial statements of Security General Insurance Company Limited- Window Takaful Operations ( the Operator), which comprise the statement of financial position as at December 31, 2019, and the statement of comprehensive income, the statement of changes in funds and the cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position, the statement of comprehensive income, the statement of changes in funds and the cash flow statement together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Operator’s affairs as at December 31, 2019 and of the profit, other comprehensive income, the changes in funds and its cash flows for the year then ended. Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Operator in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information Other than the Financial Statements and Auditor’s Report Thereon

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,

Window Takaful Operations



To the members of Security General Insurance Company Limited-Window Takaful Operations

Report on the Audit of the Financial Statements Opinion

We have audited the annexed financial statements of Security General Insurance Company Limited- Window Takaful Operations ( the Operator), which comprise the statement of financial position as at December 31, 2019, and the statement of comprehensive income, the statement of changes in funds and the cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position, the statement of comprehensive income, the statement of changes in funds and the cash flow statement together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Operator’s affairs as at December 31, 2019 and of the profit, other comprehensive income, the changes in funds and its cash flows for the year then ended. Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Operator in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information Other than the Financial Statements and Auditor’s Report Thereon

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,


based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000, and, Companies Act, 2017 (XIX of 2017), and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Operator’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Operator or to cease operations, or has no realistic alternative but to do so. Board of directors are responsible for overseeing the Operator’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether



procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Operator’s internal control.



accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Operator’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Operator to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Operator as required by the Insurance

Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017); b) the statement of financial position, the statement of comprehensive income, the statement of

changes in funds and the cash flow statement together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000, the Companies Act, 2017 (XIX of 2017), and are in agreement with the books of account;


the purpose of the Operator’s business; and d) no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of

1980). The engagement partner on the audit resulting in this independent auditor’s report is Amer Raza Mir. A.F.Ferguson & Co. Chartered Accountants Name of engagement partner: Amer Raza Mir Lahore Date: March 10, 2020



Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Operator as required by the Insurance

Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017); b) the statement of financial position, the statement of comprehensive income, the statement of

changes in funds and the cash flow statement together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000, the Companies Act, 2017 (XIX of 2017), and are in agreement with the books of account;


the purpose of the Operator’s business; and d) no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of

1980). The engagement partner on the audit resulting in this independent auditor’s report is Amer Raza Mir. A.F.Ferguson & Co. Chartered Accountants Name of engagement partner: Amer Raza Mir Lahore Date: March 10, 2020


STATEMENT OF FINANCIAL POSITIONAs at December 31, 2019

Note DECEMBER 2019 DECEMBER 2018

‘Operator’s Takaful Fund

‘Participants’ Takaful Fund Total Total

----------------Rupees in thousand----------------ASSETS

Property and equipment 6 2,625 - 2,625 1,908 Wakala fees receivable 27,023 - 27,023 3,949 Loans and other receivables 7 2,246 18,011 20,257 816 Takaful/retakaful receivables 8 11 45,984 45,995 11,544 Retakaful recoveries against outstanding claims - 22,719 22,719 518 Salvage recoveries accrued - 900 900 - Deferred commission expense / acquisition cost 9,956 - 9,956 3,053 Deferred wakala fee 20 - 20,673 20,673 5,002 Prepayments - 46,466 46,466 13,020 Cash and bank 9 39,326 27,892 67,218 49,538

81,187 182,645 263,832 89,348 Qard-e-Hasna to Participants’ Takaful Fund 11 5,000 - 5,000 -

TOTAL ASSETS 86,187 182,645 268,832 89,348

FUNDS AND LIABILITIESFUNDSStatutory fund / Ceded money 10 50,000 550 50,550 50,550 Accumulated deficit (847) (2,966) (3,813) (4,155)

49,153 (2,416) 46,737 46,395

Qard-e-Hasna From Operator’s Fund - 5,000 5,000 -

LIABILITIES

UNDERWRITING PROVISIONS- Outstanding claims including IBNR 17 - 27,422 27,422 708 - Unearned contribution reserve 16 - 58,922 58,922 14,293 - Unearned retakaful reward 18 - 12,569 12,569 3,545 Takaful/retakaful payables 13 41 51,981 52,022 11,178 Retirement benefit obligations 12 60 - 60 - Wakala fee payable - 27,023 27,023 3,949 Unearned wakala fee 20 20,673 - 20,673 5,002 Other creditors and accruals 14 16,260 2,144 18,404 4,278 TOTAL LIABILITIES 37,034 180,061 217,095 42,953

TOTAL FUND AND LIABILITIES 86,187 182,645 268,832 89,348

Contingencies and commitments 15





Note

For the year ended December

31, 2019

For the period from May 7, 2018 to December 31,

2018------Rupees in thousand------

Participants’ revenue accountNet contribution revenue 16 10,505 804

Net claims expense 17 (6,199) (307)Wakala fee 20 (21,065) (2,024)Reward on retakaful 18 13,444 1,349 Direct expenses 19 (337) (41)Takaful claims and acquisition expenses (14,157) (1,023)

UNDERWRITING RESULTS (3,652) (219)

Other income 24 831 74 DEFICIT FOR THE YEAR (2,821) (145)

Other comprehensive income - -

Total comprehensive loss for the year (2,821) (145)

Operator’s revenue account

Wakala fee 20 21,065 2,024 Commission expense 21 (11,373) (1,105)Management expenses 22 (7,674) (4,783)

2,018 (3,864)

Other income 24 1,679 723 Other expenses 23 (534) (869)Surplus/ (deficit) for the year 3,163 (4,010)

Other comprehensive income - - TOTAL COMPREHENSIVE INCOME/ (LOSS) FOR THE YEAR 3,163 (4,010)


STATEMENT OF COMPREHENSIVE INCOMEFOR YEAR ENDED DECEMBER 31, 2019



CASH FLOW STATEMENTFOR YEAR ENDED DECEMBER 31, 2019


Note For the period December 31, 2019

For the period from May 7,

2018 to December 31,

2018

Operator’s Fund Participants’ Takaful Fund Total Total

Rupees in thousandOperating cash flows(a) Takaful activitiesContributions received - 74,663 74,663 10,626 Retakaful ceded - (46,538) (46,538) (8,867)Claims paid - (4,836) (4,836) (309)Retakaful and other recoveries received - 4,050 4,050 193 Retakaful reward received - 22,468 22,468 4,894 Commission paid (8,015) - (8,015) (1,528)Wakala fee received/ (paid) 13,662 (13,662) - - Other takaful payments - (19,116) (19,116) (32)Other takaful receipts - 1,334 1,334 344 Net cash used in takaful activities 5,647 18,363 24,010 5,321

(b) Other operating activitiesGeneral and other expenses paid (5,907) - (5,907) (4,261)Net cash used in from other operating activities (5,907) - (5,907) (4,261)

Total cash (used in)/ generated from all operating activities (260) 18,363 18,103 1,060

INVESTMENT ACTIVITIESProfit recevied 708 215 923 11 Fixed capital expenditure (1,346) - (1,346) (2,083)Total cash outflow from investing activities (638) 215 (423) (2,072)

FINANCING ACTIVITIESQard-e-Hasna to Participants' Takaful Fund (5,000) - (5,000)Qard-e-Hasna from Operator's Fund - 5,000 5,000 Contribution to Operator's fund - - - 50,000 Ceded money - - - 550 Total cash inflow from financing activities (5,000) 5,000 - 50,550

NET CASH USED IN ALL ACTIVITIES (5,898) 23,578 17,680 49,538 Cash and cash equivalents at beginning of the period 45,224 4,314 49,538 - CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 9 39,326 27,892 67,218 49,538

Reconciliation to statement of comprehensive income

Operating cash flows (260) 18,363 18,103 1,060 Depreciation expense (628) - (628) (175) Bank profit 1,679 831 2,510 797 Increase in assets other than cash 30,554 123,998 154,552 37,116 Decrease in liabilities other than borrowings (28,182) (146,013) (174,195) (42,953)Deficit for the period 3,163 (2,821) 342 (4,155)




Operator’s Takaful FundStatutory

Fund Accumulated

loss Total

Rupees in thousand

BALANCE AS AT MAY 07, 2018 (AUDITED) 50,000 - 50,000Contribution made during the period - - - Loss for the period from May 07, 2018 to December 31, 2018 - (4,010) (4,010)Other comprehensive income from May 07, 2018 to December 31, 2018 - - -

Total comprehensive loss for the period - (4,010) (4,010)

Balance as at December 31, 2018 (audited) 50,000 (4,010) 45,990

Profit for the year December 31, 2019 - 3,163 3,163 Other comprehensive income for the year ended December 31, 2019 - - -

Total comprehensive surplus for the year - 3,163 3,163

Balance as at December 31, 2019 (audited) 50,000 (847) 49,153

Participant’s Takaful Fund

Cede money Accumulated deficit Total

Rupees in thousand

BALANCE AS AT MAY 07, 2018 (AUDITED) 550 - 550

Loss for the period from May 07, 2018 to December 31, 2018 - (145) (145)Other comprehensive income from May 07, 2018 to December 31, 2018 - - -

Total comprehensive loss for the year - (145) (145)

Balance as at December 31, 2018 (audited) 550 (145) 405

Loss for the year ended December 31, 2019 - (2,821) (2,821)Other comprehensive income for the year ended December 31, 2019 - - -

Total comprehensive loss for the year - (2,821) (2,821)

Balance as at December 31, 2019 (audited) 550 (2,966) (2,416)


STATEMENT OF CHANGES IN FUNDSFOR THE YEAR ENDED DECEMBER 31, 2019



1 Legal status and nature of business

Security General Insurance Company Limited (the ‘Operator’) has been allowed to undertake Window Takaful Operations (the Operations) on May 7, 2018 by the Securities and Exchange Commission of Pakistan (‘SECP’) under SECP Takaful Rules, 2012 to carry on General Window Takaful Operations in Pakistan. The registered office of the Operator is situated at SGI House, 18-C, E1, Gulberg III, Lahore. The objects of the Operator include providing general insurance services (in spheres of Fire and property damage, Marine and aviation, Motor and Miscellaneous) and general takaful services.

The Operator was granted authorisation on May 7, 2018 under Rule 6 of the Takaful Rules, 2012 to undertake Window Takaful Operations (“WTO”) by the SECP under Takaful Rules, 2012 to carry on general takaful in Pakistan.

The Operator transferred statutory fund of Rs 50 million in a separate bank account for the WTO as per the requirement of Circular 8 of 2014. The Operator has formed a Waqf for Participants’ Fund by executing the Waqf deed dated February 27, 2018 and deposited a cede money of Rs 0.55 million. The cede money is required to be invested in Shari’ah compliant remunerative instrument which may be used to acquire immovable Waqf property if Shari’ah and law so warrants. Waqf Deed governs the relationship of Operator and participants for management of takaful operations, investments of participants’ funds and investments of the Operator’s funds approved by the shari’ah advisor of the Operator. The Operator commenced activities of WTO on May 7, 2018.

2 BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE

2.1 Statement of compliance

2.1.1 These financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards applicable in Pakistan comprise of:

- International Financial Reporting Standards (IFRS) issued by the International AccountingStandards Board (IASB) as notified under the Companies Act, 2017; and

- Provisions of and directives issued under the Companies Act, 2017 and Insurance Ordinance,2000, Insurance Rules, 2017, Insurance Accounting Regulations, 2017 and Takaful Rules, 2012.

In case requirements differ, the provisions or directives of the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017 and the Takaful Rules, 2012 shall prevail.

2.1.2 Basis Of PreparationThese financial statements have been presented on the format of financial statements issued by the SECP through Insurance Rules, 2017 vide S.R.O. 89(I)/2017 dated February 9, 2017.

These financial statements reflect the financial position and results of operations of both the Operator’s Fund (OPF) and Participant Takaful Fund (PTF) in a manner that the assets, liabilities, income and expenses of the Operator and PTF remain separately identifiable.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2019



2.3 Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the Operator operates. The financial statements are presented in Pakistani Rupees, which is the Operator’s functional and presentation currency and has been rounded off to the nearest thousand of rupees.

2.4 Standards, interpretations and amendments to published accounting and reporting standards that are effective in the current year:

a) IFRS 9 - Financial instrumentsThis standard was notified by the Securities and Exchange Commission of Pakistan (SECP) to be effective from annual periods ending on or after June 30, 2019. This standard replaces the guidance in International Accounting Standard (IAS) 39, ‘Financial Instruments: Recognition and Measurement’. Key changes in the new standard include requirements on the classification, measurement and derecognition of financial assets and liabilities. The standard also contains new requirements for hedge accounting and replaces the current incurred loss impairment model with an expected credit loss model.

During the year the Operator has taken advantage of an election under IFRS 4 that permits an insurer which meets certain conditions to temporarily be exempt from adopting IFRS 9 ‘Financial Instruments’, that would have otherwise become effective from January 1, 2019, until January 1, 2022. Disclosures required under the temporarily exemption have been made by the Operator and detailed in note 4 to these financial statements.

In addition to the above, there are certain new and amended standards and interpretations that are mandatory for the Operator’s accounting periods beginning on or after January 1, 2019 but are considered not to be relevant or to have any significant effect on the Operator’s operations and are therefore not detailed in these financial statements.

b) IFRS 16 - Leases

This standard has been notified by the SECP to be effective for annual periods beginning on or after January 1, 2019. This standard replaces the current guidance in IAS 17, ‘Leases’. Under IAS 17, lessees were required to make a distinction between a finance lease (on statement of financial position) and an operating lease (off statement of financial position). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. The new accounting model for lessees may impact negotiations between lessors and lessees.

2.2 Basis of measurement

These financial statements have been prepared under the historical cost convention. All transactions reflected in these financial statements are on accrual basis except for those reflected in cash flow statements.



There are certain amendments to the standards and new interpretations that are mandatory for accounting periods beginning on or after January 1, 2019 but are considered not to be relevant or do not have any significant effect on the Operator’s operations and are, therefore, not detailed in these financial statements.

2.5 Standards, interpretations and amendments to published accounting and reporting standards that are not yet effective:

There are certain new and amended standards and interpretations that are mandatory for the Operator’s accounting periods beginning on or after January 1, 2020 but are considered not to be relevant or do not have any significant effect on the Operator’s operations although they may affect the accounting for future transactions and events upon initial application and are, therefore, not disclosed in these financial statements, except for the following:

a) IFRS 17 - Insurance contracts

This standard has been notified by the IASB to be effective for annual periods beginning on or after January 1, 2022 and yet to be notified by the SECP. The standard provides a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 that was issued in 2005. IFRS 17 applies to all types of insurance contracts as well as to certain guarantees and financial instruments with discretionary participation features. In contrast to the requirements in IFRS 4, which are largely based on grand fathering of previous local accounting policies, IFRS 17 provides a comprehensive and consistent approach to insurance contracts. The core of IFRS 17 is the general model, supplemented by a specific adaption for contracts with direct participation features (the variable fee approach) and a simplified approach (the premium allocation approach) mainly for short-duration contracts.

The main features of the new accounting model for insurance contracts include the measurement of the present value of future cash flows incorporating an explicit risk adjustment, remeasured every reporting period (the fulfilment cash flows); a contractual service margin equal and opposite to any day one gain in the fulfilment cash flows of a group of contracts, representing the unearned profit of the insurance contracts to be recognized in profit or loss over the service period (coverage period); the presentation of insurance revenue and insurance service expenses in the statement of comprehensive income based on the concept of insurance services provided during the period; and extensive disclosures to provide information on the recognized amounts from insurance contracts and the nature and extent of risks arising from these contracts.

The management is in the process of assessing the impact of changes laid down by the standard on its financial statements.

b) General Takaful Accounting Regulations, 2019

The Securities and Exchange Commission of Pakistan (SECP) vide S.R.O. 1416 (I)/2019 dated November 20, 2019 issued the General Takaful Accounting Regulations, 2019 (the Regulations) for general takaful operators and window general takaful operators which were enforceable for accounting periods commencing on or after January 1, 2020.




The Regulations provide the principles based on which accounting and reporting of general takaful business of general takaful operators and window general takaful operators shall be made. The regulations also contain the formats for reporting of the published financial statements and regulatory returns of general takaful /window takaful operators.

Consequently, the provision of Rule 19 of the Insurance Rules, 2017 along with Annexure – II and the provision of the Insurance Accounting Regulations, 2017 shall stand applicable on the Operator’s window takaful operations to the extent of its conventional insurance business modified to the extent stated in regulation 6 of the Regulations in respect of its window takaful operations. Provided that the provisions of the Regulations shall stand equally applicable on the window Takaful operations of window Takaful operator.

The management is in the process of assessing the impact of changes laid down by the Regulation on its financial statements and shall align the same with the requirements of the Regulation from accounting periods commencing on or after January 1, 2020.

In addition to the above, there are certain new standards, amendments and interpretations to accounting and reporting standards that are mandatory for the Operator’s accounting periods beginning on or after January 1, 2020 but are considered not to be relevant or to have any significant effect on the Operator’s operations and are, therefore, not detailed in these financial statements.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in preparation of these financial statements are set out below.

3.1 Takaful contracts

Takaful contracts are based on the principles of Wakala where the Participants’ Takaful Fund (PTF) accepts significant Takaful risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event adversely affects the policyholders. Once a contract has been classified as a Takaful contract, it remains a Takaful contract for the remainder of its lifetime, even if the Takaful risk reduces significantly during this period, unless all rights and obligations are extinguished or expire.

- Other Standards, amendments and interpretations Effective date (period beginning

on or after)- IAS 1, Presentation of Financial Statements (Amendments)- IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (Amendments)

January 1, 2020




Contribution income is recognized over the period of takaful from the date of the issue of the policy / cover note to which it relates, to its expiry. For direct takaful business, contribution is recognized evenly over the period of the policy and for proportional retakaful business, evenly over the period of underlying takaful policies. Where the pattern of incidence of risk varies over the period of the policy, contribution is recognized as revenue in accordance with the pattern of the incidence of risk. Contributions for policies receivable in installments are recognized as receivable at the inception of the policy and is recognized as income over the period of the policy. The gross contribution underwritten is adjusted against the unearned contribution reserves / liabilities existing at each reporting date to determine the net contribution underwritten during the year.

Since majority of policies are for one year, the Operator maintains its provision for unearned contribution by applying the 1/24th method as stipulated in regulation 24(4)(ii) of the Insurance Accounting Regulations, 2017.

In addition to direct takaful, at times the Operator also participates in risks under cotakaful from other companies and also accepts risks through retakaful inward by way of facultative acceptances on case to case basis provided such risks are within the underwriting policies of the Operator. Contribution recognized against cotakaful policies is limited to the share of the Operator only.

The Operator underwrites non-life takaful contracts categorized into fire and property damage, marine, aviation and transport, motor and miscellaneous contracts. The contracts may have a fixed term of one year or less and in some cases for more than one year. Takaful contracts entered into by the Operator under which the contract holder is another Takaful Operator (inwards retakaful) of a facultative nature are included within the individual category of takaful contracts, other than those which fall under Treaty. The takaful risk involved in these contracts is similar to the contracts undertaken by the Operator as takaful operator based on its assessment of the takaful risk involved.

‘The classification of a takaful contract into the aforementioned categories is based on management’s judgment regarding the incident / cause of loss effecting the majority of asset(s) covered under the takaful contract. The Operator performs its segment reporting activities based on the classifications of takaful contracts made, as disclosed in note 23 to these financial statements.

a ) Fire and property and damage

i) Takaful risks and events insured

Cover is provided to the takaful contract holders against damages caused by fire, earthquake, riot and strike, explosion, atmospheric disturbance, flood, electric fluctuation and impact and burglary etc. and loss of profit followed by the incident of fire. These takaful contracts are normally availed by commercial organizations, however are available to both commercial organizations and individuals.




Contribution income includes administrative surcharge that represents documentation and other charges recovered by the Operator from takaful contract holder in respect of policies issued, at the rate of 5% of the gross contribution written restricted to a maximum of Rs. 2,000 per policy.


Claim liability against losses incurred are recognized at the time of the incident giving rise to the claim, except otherwise expressly indicated in the takaful contract. A claim generally includes the loss resulting from the incident, along with claim handling costs that are directly related to the processing / settling the claims, net of any salvage recoveries and any adjustments to claims outstanding from previous years. In addition to reported claims, the liability also includes provisions made under IBNR and expected claims settlement costs.

b ) Marine, aviation and transport takaful:


Cover is provided upon the assets of the takaful contract holders against loss of or damage to cargo while in transit to and from foreign lands and inland transit due to various insured perils including loss of or damage to carrying vessel etc. This product is normally provided to commercial organizations. These takaful contracts are normally availed by commercial organizations, however are available to both commercial organizations and individuals.


Contribution income is recognized over the period of takaful from the date of the issue of the policy / cover note to which it relates, to its expiry. For direct business, contribution is recog-nized evenly over the period of the policy and for proportional retakaful business, evenly over the period of underlying takaful policies. Where the pattern of incidence of risk varies over the period of the policy, contribution is recognized as revenue in accordance with the pattern of the incidence of risk. Contribution for policies receivable in installments are recognized as receiv-able at the inception of the policy and is recognized as income over the period of the policy. The gross contribution underwritten is adjusted against the unearned contribution reserves / liabilities existing at each reporting date to determine the net contribution underwritten during the year.

Since majority of policies are for three months period, contribution written during last three months of the financial year is taken to the provision for unearned contribution at the reporting date.

In addition to direct takaful, at times the Operator also participates in risks under cotakaful from other companies and also accepts risks through retakaful inward by way of facultative acceptances on case to case basis provided such risks are within the underwriting policies of the Operator. Contribution recognized against cotakaful policies is limited to the share of the Operator only. The nature of the risks undertaken under such arrangement is consistent with the risks in each class of business as stated above.



Contribution income includes administrative surcharge that represents documentation and oth-er charges recovered by the Operator from takaful contract holder in respect of policies issued, at the rate of 5% of the gross contribution written restricted to a maximum of Rs. 2,000 per policy.



c ) Motor takaful:


Cover is provided to assets of the takaful contract holders against accidental damage to or loss of insured vehicle including loss of or damage to third party and other comprehensive car coverage. This product is normally availed by individual customers, however are available to both commercial organization and individuals.


Contribution income is recognized over the period of takaful from the date of the issue of the policy / cover note to which it relates, to its expiry. For direct business, evenly over the period of the policy and for proportional retakaful business, evenly over the period of underlying takaful policies. Where the pattern of incidence of risk varies over the period of the policy, contribution is recognized as revenue in accordance with the pattern of the incidence of risk. Contributions for policies receivable in installments are recognized as receivable at the inception of the policy and is recognized as income over the period of the policy. The gross contribution underwritten is adjusted against the unearned contribution reserves / liabilities existing at each reporting date to determine the net contribution underwritten during the year.

Since majority of policies are for one year, the Operator maintains its provision for unearned contribution by applying the 1/24th method as stipulated in regulation 24(4)(ii) of the Takaful Accounting Regulations, 2017.

In addition to direct takaful, at times the Operator also participates in risks under cotakaful from other companies and also accepts risks through retakaful inward by way of facultative acceptances on case to case basis provided such risks are within the underwriting policies of the Operator. Contribution recognized against cotakaful policies is limited to the share of the Operator only. The nature of the risks undertaken under such arrangement is consistent with the risks in each class of business as stated above.







d ) Miscellaneous takaful:


Cover is provided to assets of the takaful contract holders against damage / loss occurring due to burglary, loss of cash in safe, cash in transit and cash on counter, health, travel and crop etc. As per guidance of Insurance Accounting Regulations, 2017 amounts constituting less than 10% of the gross contribution revenue are clubbed together under this class of takaful contract. Normally personal takaful contracts e.g. cash in hand, cash in transit, personal accident, infidelity, public liabilities, livestock, travel, bankers and other financial institutions packages, product liabilities, professional indemnity, mobilization and performance bonds, workers compensation etc. are provided to individual customers.


Contribution income is recognized over the period of takaful from the date of the issue of the policy / cover note to which it relates, to its expiry. For direct business, evenly over the period of the policy and for proportional retakaful business, evenly over the period of underlying takaful policies. Where the pattern of incidence of risk varies over the period of the policy, contribution is recognized as revenue in accordance with the pattern of the incidence of risk. Contributions for policies receivable in installments are recognized as receivable at the inception of the policy and is recognized as income over the period of the policy. The gross contribution underwritten is adjusted against the unearned contribution reserves / liabilities existing at each reporting date to determine the net contribution underwritten during the year.

Since majority of policies are for one year, the Operator maintains its provision for unearned contribution by applying the 1/24th method as stipulated in regulation 24(4)(ii) of the Insurance Accounting Regulations, 2017.



In addition to direct takaful, at times the Operator also participates in risks under co-takaful from other companies and also accepts risks through retakaful inward by way of facultative acceptances on case to case basis provided such risks are within the underwriting policies of the Operator. Contribution recognized against co-takaful policies is limited to the share of the Operator only. The nature of the risks undertaken under such arrangement is consistent with the risks in each class of business as stated above.




Detailed accounting policies for recording and measurement of retakaful contracts held, receivables / payables related to takaful contracts and provision for outstanding claims including Incurred But Not Reported (IBNR) are mentioned in note 3.4 and 3.16 respectively.

3.2 Revenue recognition

a ) Contribution income earned

Contribution income under a takaful contract is recognized over the period of takaful from the date of the issue of the policy/cover note to which it relates, to its expiry.

b ) Rebate from retakaful operators

Rebate from retakaful operators is recognised at the same time of insurance of the underlying takaful policy by the Operator and is deferred in accordance with the pattern of recognition of the retakaful contribution to which it relates.

c ) Investment income

Return on Islamic investment products i.e. investments, profit on profit and loss sharing accounts and bank deposits are recognized on accrual basis.




d ) Wakala and Modarib’s share

The Operator manages the general takaful operations for the participants and charges wakala fee at following rates of gross contribution written including administrative surcharge as Wakala fee against the services.


Class Percentage Percentage

Fire and property damage 35.0% 35.0%Marine, aviation and transport 40.0% 40.0%Motor 35.0% 35.0%Miscellaneous 30.0% 30.0%

The deferred portion of wakala fee is recognised as a prepayment in PTF and unearned wakala fee in OPF. The deferred portion of wakala fee is calculated by using 1/24 method.

e ) Administration surcharge

Administrative surcharge includes documentation and other charges recovered by the Operator from takaful contact holders in respect of takaful policies issued, at a rate of 5% of the gross contribution, restricted to a maximum of Rs. 2,000. Administrative surcharge is recognized as revenue at the time of issuance of policy.

For the purpose of these financial statements, administrative surcharge is included in gross contribution written during the year.

3.3 Retakaful ceded

The Operator enters into retakaful contracts with retakaful companies by arranging treaty retakaful, whereby certain agreed proportion of risks are shared with the participating companies, hence higher underwriting capacity with larger spread becomes available. Depending upon the nature and / or size of the risk at times retakaful of excess of capacity is also placed on case to case basis under facultative retakaful arrangement. The Operator also accepts facultative retakaful from other local takaful companies provided the risk meets the underwriting requirements of the Operator.

“The risks undertaken by the Operator under these contracts for each operating segment are stated in note 3.1 to the financial statements.”



3.4 Receivables and payables related to takaful contracts

Takaful/retakaful receivables and payables are recognized when due and carried at cost less provision for impairment. Cost is the fair value of the consideration to be received/ paid in the future for services rendered/ received. These include amounts due to and from agents, brokers, takaful contract holders and other takaful companies.

An assessment is made at each reporting date to determine whether there is objective evidence from external as well as internal sources of information that a financial asset or group of assets may be impaired i.e. recoverable amount at the reporting date is less than the carrying amount of the asset. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognized, in the profit and loss account, for the difference between the recoverable amount and the carrying amount. Provisions for impairment are reviewed at each reporting date and adjusted to reflect the current best estimates. Changes in the provisions are recognized as income or expense, in the profit and loss account for the period.

3.5 Segment reporting

The Operator accounts for segment reporting based on the guidelines of the Insurance Accounting Regulations, 2017 and the operating segments as specified under the Insurance Ordinance, 2000 and the Insurance Rules, 2017, as the primary reporting format based on the Operator’s practice of internal reporting to the management on the same basis. The Operator has determined its primary segments based on takaful risks covered under four types of takaful contracts as stated in note 3.1, to the financial statements.

Assets, liabilities and capital expenditures that are directly attributable to segments have been assigned to them while the carrying amount of certain assets used jointly by two or more segments have been allocated to segments on a reasonable basis. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities.

The benefits to which the Operator is entitled under retakaful contracts held are recognized as retakaful assets. These assets include retakaful receivables as well as receivables that are dependent on the expected claims and benefits arising under the related retakaful contracts. Retakaful liabilities primarily include contribution payable and retakaful rebate payable (in case of facultative acceptance). Retakaful assets and liabilities are measured consistently with the terms of the underlying retakaful contracts.

Retakaful assets and liabilities are derecognized when the contractual rights are extinguished or expired. Furthermore, Retakaful assets are not offset against related takaful liabilities.

Assets, liabilities and income and expense arising from ceded retakaful contracts are presented separately from the assets, liabilities, income and expense from the related takaful contracts because the retakaful arrangements do not relieve the PTF from its direct obligation to its policyholders.

The deferred portion of retakaful contribution is recognised as a prepayment in PTF. The deferred portion of retakaful contribution ceded is calculated by using 1/24 method.




As the operations of the Operator are predominantly carried out in Pakistan, information relating to geographical segment is not considered relevant.

3.6 Provision for outstanding claims / benefits including Incurred But Not Reported (IBNR)

General takaful claims include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

The Operator recognises liability in respect of all claims incurred upto the reporting date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in an takaful contract. The liability for claims include amounts relating to unpaid reported claims, claims incurred but not reported (IBNR) and expected claims settlement costs.

Outstanding claims comprise the estimated cost of claims incurred but not settled at the reporting date, whether reported or not. The Operator engages an actuary to estimate the IBNR as per the SECP Circular No. 9 of 2016, “SEC guidelines for estimation of Incurred but not Reported claim reserve, 2016”.

The Guidelines require that estimation for provision for claims incurred but not reported for each class of business, by using prescribed method “Chain Ladder Method” and other alternate method as allowed under the provisions of the Guidelines. The Chain Ladder Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level to derive an IBNR estimate.

The process used to determine the assumptions for calculating the outstanding claim reserve is intended to result in neutral estimates of the most likely or expected outcome. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate, case by case basis with due regard to claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Case estimates are reviewed regularly and are updated as and when new information is available.

The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, in which case information about the claim event is available. IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of the retakaful recoveries. The estimation process takes into account the past claims reporting pattern and details of reinsurance arrangements.



The premium liabilities have been determined such that the total premium liability provisions (unearned premium reserve and contribution deficiency reserve) would be sufficient to service the future expected claims and expenses likely to occur on the unexpired policies as of reporting date. The expected future liability is determined using estimates and assumptions based on the experience during the expired period of the contracts and expectations of future events that are believed to be reasonable.

3.7 Retakaful recoveries against claims

Retakaful recoveries against outstanding claims and salvage recoveries are recognised as an asset and measured at the amount expected to be received.

3.8 Commission, other acquisition costs and retakaful reward

Commission expense and other acquisition costs are charged to the OPF at the time the policies are accepted. Retakaful reward from retakaful operator is recognised at the time of issuance of the underlying takaful policy by the PTF. This income is deferred and brought to statement of comprehensive income as revenue in accordance with the pattern of recognition of the retakaful contribution to which it relates. Retakaful reward from retakaful operator is arrived at after taking the impact of opening and closing unearned retakaful reward. Profit on retakaful contracts, if any, which the PTF may be entitled to under the terms of retakaful, is recognised on accrual basis.

3.9 Unearned contribution reserves

The unearned portion of contribution written is set aside as an unearned contribution reserve. The provision for unearned contribution accordingly, represents the portion of contribution written relating to the unexpired period of takaful coverage at the reporting date. The method selected by management involves judgement and estimates regarding the expected pattern of incidence of risk in relation to a particular type of policy.

The Operator maintains its provision for unearned contribution by applying the 1/24th method on fire and property damage, motor and miscellaneous as stipulated in regulation 24(4)(ii) of the Insurance Accounting Regulations, 2017. However, in case of marine, aviation and transport, contribution written during last three month is taken by applying 1/6th method to the provision for unearned contribution.

3.10 Contribution deficiency reserve

The Operator is required as per the Insurance Accounting Regulations, 2017, to maintain a provision in respect of contribution deficiency for the class of business where the unearned contribution reserve is not adequate to meet the expected future liability, after retakaful from claims, and other supplementary expenses expected to be incurred after the reporting date in respect of the unexpired takaful contracts in that class of business at the reporting date. The movement in the contribution deficiency reserve is recorded as an expense in the statement of comprehensive income.




Keeping in view the adequacy of the reserves on December 31, 2019, in line with the provisions of the Insurance Ordinance, 2000, the Insurance Rules 2017 and the Insurance Accounting Regulations, 2017, a contribution deficiency reserve is not required and accordingly no provision for the same has been made in financial statements of the current year. Also the loss ratio has been calculated using eight months data as the operations started on May 7th, 2018.

2019Fire and property damage 0%Marine, aviation and transport -101%Motor -383%Miscellaneous 0%

3.11 Takaful surplus

Takaful surplus attributable to the participants is calculated after charging all direct cost and setting aside various reserves. Allocation to participants, if applicable, is made after adjustment of claims paid to them during the year.

3.12 Qard-e-Hasan

Qard-e-Hasan is provided by Operator’s fund to PTF in case of deficit or to fulfill cash flow requirements.

3.13 Creditors, accruals and provisions

Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in the future for the services received, whether or not billed to the Operator.

Provisions are recognised when the Operator has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

3.14 Taxation

The profit of the Operator is taxed as part of total profit of the SGI General Insurance Company Limited as the Operator is not separately registered for tax purposes.

3.15 Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of cash flow statement, cash and cash equivalents comprise cash in hand, deposits with banks, stamps in hand and short term borrowings.



3.16 Financial assets

3.16.1 Classification

The Operator invests in Shariah compliant financial instruments only. All investments are initially recognised at cost, being the fair value of the consideration given and include transaction cost, except for held for trading investments in which case transaction costs are charged to the statement of comprehensive income. These are classified into the following categories:

a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the statement of financial position date, which are classified as non-current assets. Loans and receivables comprise insurance/reinsurance receivables, loans, advances, deposits and other receivables, reinsurance recoveries against outstanding claims and bank balances in the statement of financial position.

b) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investments within twelve months from the statement of financial position date.

c) Held-to-maturity

Investments with fixed maturity, which the management has the intent and ability to hold till maturity are classified as held-to-maturity and are initially recognized at cost being the fair value of consideration given and include transaction costs.

Income from held-to-maturity investments is recognized on a time proportion basis taking into account the effective yield on the investments.

In case of fixed income securities redeemable at a given date where the cost is different from the redemption value, such difference is amortized uniformly over the period between the acquisition date and the date of maturity in determining ‘cost’ at which these investments are stated as per the requirements of the SEC (Insurance) Rules, 2002.




3.16.2 Recognition and measurement

All financial assets are recognized at the time when the Operator becomes a party to the contractual provisions of the instrument. Regular purchases and sales of investments are recognized on trade-date; the date on which the Operator commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the profit and loss account. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Operator has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. For investments having quoted price in active market, the quoted price represents the fair value. In other cases, fair value is measured using appropriate valuation methodology and where fair value cannot be measured reliably, these are carried at cost. Loans and receivables are carried at amortized cost using the effective interest rate method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the profit and loss in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the profit and loss as part of other income when the Operator’s right to receive payments is established.

Changes in the fair value of securities classified as available-for-sale are recognized in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the other comprehensive income as gains and losses from investment securities. Interest on available-for-sale investments calculated using the effective interest method is recognized in the profit and loss. Dividends on available-for-sale equity instruments are recognized in the profit and loss when the Operator’s right to receive payments is established.

The Operator assesses at each reporting date whether there is an objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognized in the profit and loss. Impairment losses recognized in the profit and loss on equity instruments are not reversed through the profit and loss. Impairment testing of insurance/reinsurance receivables and other receivables is described in note 3.18..

3.16.3 Financial liabilities

All financial liabilities are recognized at the time when the Operator becomes a party to the contractual provisions of the instrument.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognized in the profit and loss.



3.16.4 Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and the net amount is reported in the financial statements only when there is a legally enforceable right to set off the recognized amount and the Operator intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously.

3.17 Operating assets

These are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Depreciation on all fixed assets is charged to profit and loss on the straight line method so as to write-off depreciable amount of an asset over its useful life. Depreciation on additions to fixed assets is charged from the month in which an asset is acquired or capitalised, while no depreciation is charged for the month in which the asset is disposed off.The assets’ residual values and useful lives are reviewed, at each financial year end, and adjusted, if impact on depreciation is significant. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the items will flow to the Operator and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to profit and loss in the period in which they are incurred.

The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognised as an income or expense.

3.18 Impairment

The carrying values of the Operator’s non-financial assets are reviewed at each financial year end for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The resulting impairment loss is taken to the statement of comprehensive income.

3.19 Provision for doubtful receivables

Receivables under insurance contracts are recognized when due, at the fair value of the consideration receivable less provision for doubtful debts, if any, provision for impairment of premium receivables is established when the chances of recovery are less. Receivables are also analyzed as per their ageing and accordingly provision is maintained on a systematic basis. The provision is made while taking into consideration of expected recoveries, if any.




3.20 Foreign currency transactions and translations

Foreign currency transactions are translated into Pak Rupees at the exchange rates prevailing on the date of transaction. Monetary assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using exchange rates at the date when the fair value was determined. Exchange gains or losses are included in income currently.

3.21 Management expenses

Expenses of management allocated to the underwriting business represent directly attributable expenses and indirect expenses allocated to the various classes of business on the basis of gross contribution. Expenses not allocable to the underwriting business are charged as administrative expenses.

4 Temporary exemption from application of IFRS 9 - Financial instruments

4.1 Operator’s activities are predominantly connected with insuranceAs allowed by the International Accounting Standards Board (IASB) the Operator’s management has opted for a temporary exemption from IFRS 9 on the basis that its activities are predominantly connected with insurance.

The Operator qualifies for temporary exemption from applying IFRS 9 ‘Financial Instruments’ on the grounds that it has not previously applied any version of IFRS 9 and its activities are predominantly connected with insurance, with the carrying amount of its liabilities within the scope of IFRS 4 being greater than the required threshold of the total carrying amount of all its liabilities at December 31, 2019 i.e first reporting date of the Operator subsequent to December 31, 2018. Furthermore there was no subsequent change in its activities that warrant a reassessment of the same.

5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with the approved accounting standards as applicable in Pakistan requires the use of certain critical accounting estimates, judgments and assumptions that affect the reported amount of assets, liabilities, income and expenses. It also requires the management to exercise its judgment in the process of applying the Operator’s accounting policies. Estimates and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances.

The areas where various assumptions and estimates are significant to the Operator’s financial statements are as follows:

i) provision for outstanding claims including IBNR and retakaful recoveries there against (note 3.6)

ii) contribution deficiency reserve (note 3.6)

iii) useful lives of operating assets (note 5)



Note 2019 2018

Operator’s Takaful

Fund

Participants Takaful

FundTotal Total

------------ Rupees in thousand ------------

7 LOANS AND OTHER RECEIVABLES

Accrued income 1,681 690 2,371 782 Receivable from Operator's Takaful Fund

- 844 844 25

Receivable from Participation's Takaful Fund

95 - 95 -

Receivable from Security General Insurance Company Limited

271 16,306 16,577 -

Loans to employees 104 - 104 - Advance income tax 95 - 95 - Sales tax recoverable - 171 171 9

2,246 18,011 20,257 816

6 Operating assets2019


as at De-cember 31

Depreciation rate %As at

January 1Addition/

(disposals)

As at December

31

As atJanuary 1


(disposals)

As at December

31--------------------------Rupees in thousand--------------------------

Motor vehicles 2,083 1,346 3,429 175 629 804 2,625 20%

2,083 1,346 3,429 175 629 804 2,625

2018Cost Accumulated depreciation Written

down value as at De-

cember 31

Depreciation rate %As at

January 1Addition/

(disposals)

As at December

31

As atJanuary 1


(disposals)

As at December

31--------------------------Rupees in thousand--------------------------

Motor vehicles - 2,083 2,083 - 175 175 1,908 20%

- 2,083 2,083 - 175 175 1,908

6.1 Depreciation charged during the year is made part of the management expenses. Refer note 22.




Note 2019 2018

Operator’s Takaful

Fund


FundTotal Total


8 TAKAFUL/RETAKAFUL RECEIVABLES

Considered goodContribution due from policyholders - 21,978 21,978 6,881 Amount due from other takaful/retakaful operators 11 24,006 24,017 4,663

11 45,984 45,995 11,544

9 Cash and bank

Cash and cash equivalentsCash in hand 57 - 57 110

Cash at bankCurrent accounts - - - Profit and loss sharing accounts 9.1 39,269 27,892 67,161 49,428

39,326 27,892 67,218 49,538

9.1 The rate of profit and loss sharing accounts range from 8.65% to 12.25% (2018: 2.75% to 5.25%) per annum, depending on the size of average deposits.

2019 2018Note Rupees in thousand

10 STATUTORY FUND

Statutory reserves 10.1 50,000 50,000

‘Amount of Rs. 50,000 thousand (2018: Rs. 50,000 thousand) is deposited as statutory reserves to comply with provisions of para 4 of Circular No 8 of 2014 read with section 11(c) of Takaful Rules, 2012 issued by Securities and Exchange Commission of Pakistan which states that “Every insurer who is interested to commence window takaful business shall transfer an amount of not less than 50 million Rupees to be deposited in a separate bank account for window takaful business duly maintained in a scheduled bank”.




11 QARD-E-HASNA - PTF

Opening balance of Qard-e-Hasna - - Qard-e-Hasna transferred from OPF during the year 5,000 - Qard-e-Hasna returned by PTF during the year - -

Closing balance of Qard-e-Hasna 5,000 -

12 RETIREMENT BENEFIT OBLIGATIONS

These are other long term benefits amounting to Rs. 60,000.

2019 2018Operator’s

Takaful Fund


FundTotal Total


13 TAKAFUL/RETAKAFUL PAYABLE

Amount due to cotakaful/retakaful operators 41 51,981 52,022 11,178

14 OTHER CREDITORS AND ACCRUALS

Accrued expenses 951 - 951 716 Commission payable 12,815 - 12,815 2,630 Federal excise duty and sales tax - 1,517 1,517 394 Federal takaful fee - 102 102 28 Withholding tax payable 39 27 66 27 Payable to Security General Insurance Company Limited

1,201 336 1,537 423

Payable to Operator's Takaful Fund - 95 95 - Payable to Participant's Takaful Fund 844 - 844 29 Others 411 67 478 31

16,261 2,144 18,405 4,278

15 CONTINGENCIES AND COMMITMENTS

There are no contingencies and commitments as at December 31, 2019.




‘Participants’ Takaful FundFor the

year ended December 31,

2019

For the period May 07, 2018 to December

31, 2018 Rupees in thousand

16 NET CONTRIBUTION REVENUE

Written gross contribution 105,373 20,280 Unearned contribution reserve - opening 14,293 - Unearned contribution reserve - closing (58,922) (14,293)Contribution earned 60,744 5,987

Retakaful contribution ceded (83,685) (18,203)Prepaid retakaful contribution ceded - opening (13,020) - Prepaid retakaful contribution ceded - closing 46,466 13,020 Retakaful expense (50,239) (5,183)

10,505 804

17 NET CLAIMS

Claims paid 5,736 309 Outstanding claims (including IBNR) - opening (708) - Outstanding claims (including IBNR) - closing 27,422 708 Claims expense 32,450 1,017

Retakaful and other recoveries received (4,050) (193)Retakaful and other recoveries in respect of outstanding claims - closing

(22,719) (518)

Retakaful and other recoveries in respect of outstanding claims - opening

518 -

(26,251) (710) 6,199 307

17.1 CLAIM DEVELOPMENT

The development of claims against takaful contracts written is not disclosed as there is inadequate claim experience i.e. less than five years of the takaful business till date and claims are generally settled within one year.



Operator’s Takaful FundFor the

year ended December 31,

2019

For the period May 07, 2018 to

December 31, 2018

Rupees in thousand

18 REWARD ON RETAKAFUL

Reward on retakaful received 22,468 4,894 Unearned retakaful reward - opening 3,545 - Unearned retakaful reward - closing (12,569) (3,545)

13,444 1,349

19 DIRECT EXPENSES

Service charges 337 32 Bank charges - 9

337 41

20 NET WAKALA FEE

Gross wakala fee 36,736 7,026 Deferred wakala fee - opening 5,002 - Deferred wakala fee - closing (20,673) (5,002)

21,065 2,024

21 NET COMMISSION EXPENSE

Commission paid or payable 18,276 4,158 Deferred commission - opening 3,053 - Deferred commission - closing (9,956) (3,053)

11,373 1,105

22 MANAGEMENT EXPENSES

Salaries, allowances and other benefits 4,930 2,122 Shari'ah advisor fees 1,020 935 Printing and stationery 188 471 Computer running expenses - 590 Travelling expense - 22 Legal and professional 127 - Depreciation 628 175 Motor expenses 630 455 Others 151 13

7,674 4,783





22.1 COMPENSATION OF EXECUTIVE

Aggregate amounts charged in the accounts for remuneration, including all benefits to executive of the company is as follows

For the year ended

December 31, 2019


December 31, 2018

Rupees in thousand

EXECUTIVE

Managerial remuneration 1,226,988 - Leave encashment 153,374 - Bonus paid 460,122 - Contribution to defined benefit plan 102,249 - Contribution to defined contribution plan 122,700 - Rent and house maintenance 490,795 - Utilities 122,700 - Medical 190,831 - Others (Communication, Entertainment, Travelling & Fuel) 324,654 - Total 3,194,413 -

Number of Persons 1 -

22.2 Executive means an employee other than Chief Executive and Directors, whose basic salary exceeds twelve hundred thousand rupees in a financial year.

For the year ended

December 31, 2019


December 31, 2018

Rupees in thousand

23 OTHER EXPENSES

Auditors' remuneration 534 319 Ceded amount to PTF - 550

534 869

24 OTHER INCOME

OPERATOR’S FUNDProfit on profit and loss sharing account 1,679 723


For the year ended

December 31, 2019


December 31, 2018

Rupees in thousand

PARTICIPANT’S TAKAFUL FUNDProfit on profit and loss sharing accounts 831 74

- Profit on profit and loss sharing account 2,510 797

25 RELATED PARTY TRANSACTIONS ‘Related parties comprises of associated entities, entities under common control, entities with common directors, major shareholders, post employment benefit plans and key management personnel, inclusive of directors, and their close family members. The Company in the normal course of business carries out transactions with various related parties. Transactions with related parties are summarised as follows:

For the year ended

December 31, 2019


December 31, 2018

Rupees in thousand

TRANSACTIONS DURING THE PERIOD(i) Associated companies based on common directorship

Gross contribution written 1,014 - 1,014 -

(i) Key management personnelEmployee benefits 2,150 1,954

2,150 1,954




26SE

GM

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1820

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43,

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8,9

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1,2

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452

1

22,3

21

23,

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(5,5

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(2,3

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(1,1

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(203

) (8

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) (5

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(161

) (6

1) (1

5,62

0) (3

,087

)Fe

dera

l Ins

uran

ce F

ee (4

70)

(153

) (9

4) (1

4) (7

52)

(32)

(12)

(4

) (1

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) (2

03)

Oth

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harg

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Ad

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-

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ss w

ritt

en c

ontr

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(incl

usiv

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adm

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trat

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surc

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7,16

3 1

5,27

5 7

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1

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5

9,42

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1

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,373

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1

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9

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15,

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7,7

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1,3

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59,

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3,2

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1,0

33

387

1

05,3

73

20,

280

Con

trib

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26,

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3,6

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6,3

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1,1

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27,

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1,0

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60,

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5,9

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xpen

se (2

3,26

6) (3

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) (1

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) (2

0,89

2) (9

68)

(516

) (1

25)

(50,

239)

(5,1

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con

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6

22

753

1

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6,8

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51

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22

10,

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1,7

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3

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3,444

1,3

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und

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1

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2

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4

20

11,

457

182

2

43

56

23,

949

2,1

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(1

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(10,

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(32,

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(1,0

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1

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9

8 5

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6

12

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6,25

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cla

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(997

)-

(39)

(474

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,163

) 1

67

-

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) (3

07)

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ala

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(8,9

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(1,2

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(2,3

98)

(442

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) (3

24)

(171

) (4

2)

(21,

065)

(2,0

24)

Dire

ct e

xpen

se (1

24)

(30)

(24)

(3)

(186

) (7

) (3

) (1

) (3

37)

(41)

Net

cla

ims

and

expe

nses

(1

0,052)

(1,2

46)

(2,4

61)

(919

) (1

4,91

4) (1

64)

(174

) (4

3)

(27,

601)

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1920

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85

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356

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3,21

1 5

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1

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2,98

8 4

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1

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5

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3

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54,

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8

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26,

129

7,9

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1,8

70

89,

626

2,3

87

1,5

84

2,9

78

177

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3

3,36

4 U

nallo

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’ Tak

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Fun

d -

-

-

- 2

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7

37

- O

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d -

-

-

- 3

7,03

4 8

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Co

nsol

idat

ed to

tal l

iabi

litie

s 2

17,0

95 4

2,95

3




27 MANAGEMENT OF TAKAFUL RISK AND FINANCIAL RISK

The Operator issue contracts that transfer takaful risk or financial risk or both. This section summarises the takaful risks and the way the Operator manages them.

27.1 Takaful risk management

27.1.1 Takaful risk

The risk under any one takaful contract is the possibility of the covered event occurring and the uncertainty of the amount of the resulting claim. The Operator is exposed to the uncertainty surrounding the timing, frequency and severity of claims under takaful contracts and there is a risk that actual claims exceed the carrying amount of the takaful liabilities.

Experience shows that the larger the portfolio of similar takaful contracts, the smaller will be the relative variability about the expected outcome. In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio. The Operator has developed its takaful underwriting strategy to diversify the type of takaful risks accepted and within each of these categories the Operator’s takaful contract are for a maximum period of one year.

Factors that aggravate takaful risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

(a) Frequency and severity of claims

Political, environmental, economical and climatic changes give rise to more frequent and severeextreme events (for example, fire, theft, riot and strike, explosion, earthquake, atmosphericdamage, hurricanes, typhoons, river flooding, electric fluctuation, terrorism, war risk, damagesoccurring in inland transit, burglary, loss of cash in safe and cash in transit, travel and personalaccident, money losses, engineering losses and other events) and their consequences (forexample subsidence claims). For certain contracts, the Operator has also limited the number ofclaims that can be paid in any policy year or introduced a maximum amount payable for claimsin any policy year.

Takaful contracts which are divided into direct and facultative arrangements are furthersubdivided into four segments: fire and property damage, marine, aviation and transport,motor and miscellaneous. The takaful risk arising from these contracts is concentrated in theterritories in which the Operator operates, and there is a balance between commercial andpersonal properties/assets in the overall portfolio of covered properties/assets. The Operatorunderwrites takaful contracts in Pakistan only.

The Operator manages these risks through its underwriting strategy, adequate retakafularrangements and proactive claims handling.



The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography. The Operator has the right to re-price the risk on renewal. It also has the ability to impose deductibles and reject fraudulent claims. Takaful contracts also entitle the Operator to pursue third parties for payment of some or all costs (for example subrogation). The claims payments are limited to the extent of sum covered on occurrence of the covered event.

The Operator has entered into retakaful cover/arrangements, with local and foreign retakaful operators having good credit rating by reputable rating agencies, to reduce its exposure to risks and resulting claims. Keeping in view the maximum exposure in respect of key zone aggregates, a number of proportional and non-proportional facultative retakaful arrangements are in place to protect the net account in case of a major catastrophe. The effect of such retakaful arrangements is that the Operator recovers the share of claims from retakaful companies thereby reducing its exposure to risk. Apart from the adequate event limit which is a multiple of the treaty capacity or the primary recovery from the proportional retakaful arrangements, any loss over and above the said limit would be recovered under non-proportional treaty which is very much in line with the risk management philosophy of the Operator.

In compliance of the regulatory requirement, the retakaful agreements are duly submitted with the SECP on an annual basis.

The Operator has claims department dealing with the mitigation of risks surrounding claims incurred whether reported or not. This department investigates and settles all claims based on surveyor’s report/assessment. The unsettled claims are reviewed individually at least semi-annually and adjusted to reflect the latest information on the underlying facts, contractual terms and conditions, and other factors. The Operator actively manages and pursues early settlements of claims to reduce its exposure to unpredictable developments.

(b) Sources of uncertainty in the estimation of future claim payments

Claims reported and the development of large losses/catastrophes is analysed separately. The shorter settlement period for claims allows the Operator to achieve a higher degree of certainty about the estimated cost of claims including IBNR. However, the longer time needed to assess the emergence of a subsidence claim makes the estimation process more uncertain for these claims.

The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected subrogation value, retakaful and other recoveries. The Operator’s claim are for shorter settlement period generally and Operator takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome may be different from the original liability established. The liability comprises amount in relations to unpaid reported claims, claims incurred but not reported (IBNR), expected claims settlement costs and a provision for unexpired risks at the end of the reporting period.




Liability in respect of outstanding claims is based on the best estimate of the claims intimated or assessed. In calculating the estimated cost of unpaid claims (both reported and not), the Operator estimation techniques are a combination of loss-ratio based estimates (where the loss ratio is defined as the ratio between the ultimate cost of takaful claims and takaful contribution earned in prior financial years in relation to such claims) and an estimate based upon actual claims experience using predetermined basis where greater weight is given to actual claims experience as time passes.

In estimating the liability for the cost of reported claims not yet paid, the Operator considers any information available from surveyor’s assessment and information on the cost of settling claims with cases having similar characteristics in previous periods. Claims are assessed on a case-by-case basis separately.

(c) Process used to decided on assumptions

The risks associated with takaful contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis. This exposure is geographically concentrated in the Pakistan only.

The Operator uses internal data to measure its related estimated claim liabilities. Internal data is derived mostly from the Operator’s monthly claims reports, surveyor’s report for particular claim and screening of the actual takaful contracts carried out to derive data for the contracts held. The Operator has reviewed the individual contracts and in particular the industries in which the participant companies operate and the actual exposure years of claims. This information is used to develop related provision for outstanding claims (both reported and non-reported).

The principal assumption underlying the liability estimation of IBNR and contribution deficiency reserve is that the Operator’s future claim development will follow similar historical pattern for occurrence and reporting. The management uses qualitative judgment to assess the extent to which past occurrence and reporting pattern will not apply in future. The judgment includes external factors e.g. treatment of one-off occurrence claims, changes in market factors and economic conditions etc.

(d) Changes in assumptions

The Operator has not changed its assumptions for the takaful contracts as disclosed in above (b) and (c).

(e) Sensitivity analysis

The analysis of exposure described in paragraph (c) above is also used to test the sensitivity of the selected assumptions to changes in the key underlying factors. Assumptions of different levels have been used to assess the relative severity of subsidence claims given past experience. The key material factor in the Operator’s exposure to subsidence claims is the risk of more permanent changes in geographical location in which Operator is exposed.



The Operator makes various assumptions and techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios. The Operator considers that the liability for takaful claims recognised in the statement of financial position is adequate. However, actual experience will differ from the expected outcome.

As the Operator enters into short term takaful contracts, it does not assume any significant impact of changes in market conditions on unexpired risks. However, results of sensitivity testing assuming 10% change in the claim incidence net of recoveries showing effect on underwriting results and balance of waqf is set out below.

2019 2018Underwritingresults

Balance of

Waqf

Underwritingresults

Balance of

WaqfRupees in thousand

10% increase in average claim costFire and property damage (22) (22) - - Marine, aviation and transport - - (23) (23)Motor (2) (2) (8) (8)

(24) (24) (31) (31)

10% increase in average claim costFire and property damage 22 22 - - Marine, aviation and transport - - 23 23 Motor 2 2 8 8

24 24 31 31

Concentration of takaful risk

A concentration of risk may also arise from a single takaful contract issued to a particular type of participant, within a geographical location or to types of commercial business. In order to minimise the financial exposure arising from large claims, the Operator, in the normal course of business, enters into agreement with other retakaful operators, who are dispersed over several geographical regions.

The Operator has certain single takaful contracts, which it considers as risk of high severity but very low frequency. The Operator cedes substantial part of these risks to the retakaful companies on its panel and its maximum exposure on any single policy is limited to the amount of Rs 25 million.

The maximum class wise risk exposure (in a single policy) is as follows:




28 FINANCIAL RISK MANAGEMENT

The Operator has exposure to the following risks from its use of financial instruments:

- Credit risk- Liquidity risk- Market risk

The Board of Directors has overall responsibility for the establishment and oversight of the Operator’s risk management framework. The Board is also responsible for developing and monitoring the Operator’s risk management policies.

Risk management framework

Every takaful operator is exposed to a wide range of risks, some discrete and some interdependent; integrated risk management entails strong governance processes; ensuring greater accountability, transparency and risk awareness in underwriting, investment and strategic decisions. The Board of Directors take ultimate responsibility for supervising the Operator’s risk management framework. Risk management framework covers the need to review the strategy of an Operator and to assess the risk associated with it.

The Audit Committee oversees compliance by management with the Operator’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Operator. The Audit Committee is assisted in its oversight role by an Internal Audit Function. Internal Audit undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

28.1 Credit risk

Credit risk is the risk that arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Operator attempts to control credit risk by mitigating credit exposures by undertaking transactions with a large number of counter parties in various industries and by continually assessing the credit worthiness of counter parties.


The maximum class wise risk exposure (in a single policy) is as follows:2019 2018

Gross sum covered

Retakaful cover

Highest net

liability

Gross sum covered

Retakaful cover

Highest net

liability Rupees in thousand

Fire and property damage 6,861,703 6,837,687 24,016 - - - Marine, aviation and transport 284,396 281,552 2,844 30,000 24,000 6,000

Motor 14,200 13,206 994 17,212 9,732 7,480 Others including miscellaneous 10,000 9,600 400 - - -

7,170,299 7,142,045 28,254 47,212 33,732 13,480


28.1.1 Exposure to credit risk

Credit risk of the Operator arises principally from the deposit and account placement with banks, contribution due but unpaid, amount due from other takaful/retakaful operators, retakaful and other recoveries against outstanding claims and other receivables. To reduce the credit risk, Operator’s management monitors exposure to credit risk through its regular review, assessing credit worthiness of counter parties and prudent estimates of provision for doubtful debts.

The carrying amount of financial assets represent the maximum credit exposure, as specified below:


Cash at bank 9 67,161 49,428 Takaful/retakaful receivables 8 45,995 11,544 Wakala fee receivable 27,023 3,949 Retakaful recoveries against outstanding claims 22,719 518 Loans and other receivables 7 19,991 807

182,889 66,246

The credit quality of the Operator’s bank balances and deposits can be assessed with reference to external credit ratings as follows:

2019 2018Short term

Long term Agency Short

term Long term Agency

Meezan Bank Limited AA+ A1+ PACRA

MCB Islamic Bank Limited A1 A PACRA A1 A PACRA

Contribution due but unpaid

Contribution due but unpaid is mostly recoverable from corporate customers.

Concentration of credit risk

Concentration of credit risk occurs when a number of counterparties have a similar type of business activities. As a result, any change in economic, political or other conditions would effect their ability to meet contractual obligations in similar manner. Sector-wise analysis of gross "contribution due but unpaid" (before charging of provision for impairment) at the reporting date was:




2019 2018

Amount due from retakaful operators

Retakaful recoveries

against outstanding

claims

Prepaid retakaful

contribution ceded

Amount due from retakaful operators

Retakaful recoveries

against outstanding

claims

Prepaid retakaful

contribution ceded

Rupees in thousand

A or above - 18,933 19,801 4,577 297 9,124 A- 2,109 - 15,274 - - - BBB - 3,752 - 86 - 665 Others - 33 11,391 - 220 3,231

2,109 22,718 46,466 4,663 517 13,020


Retakaful ceded does not relieve the Operator from its obligation to participants and as a result the Operator remains liable for the portion of outstanding claims covered by retakaful to the extent that retakaful fails to meet the obligation under the retakaful agreements.

In common with other takaful companies, in order to minimise the financial exposure arising from large claims, the Operator, in the normal course of business, enters into agreement with other retakaful companies.

The Operator enters into retakaful arrangements with retakaful companies having sound credit ratings accorded by reputed credit rating agencies. An analysis of all retakaful assets relating to outward treaty cessions recognised by the rating of the entity from which it is due is as follows:

2019 2018 Rupees

in thousand

% Rupees

in thousand

%

Engineering 21 0% 509 7%Food 11,794 53% 3,111 45%Other manufacturing 5,267 24% 1,742 25%Others 5,008 23% 1,519 22%

22,090 100% 6,881 99%

Age analysis of “contribution due but unpaid” at the reporting date was:

2019 2018Gross Impairment Gross Impairment

Rupees in thousand

Upto 1 year 22,090 - 6,881 -


Age analysis of “Amount due from other takaful companies” at the reporting date was:

2019 2018Gross Impairment Gross Impairment

Rupees in thousand

Upto 1 year 2,109 - 4,663 -

In respect of the aforementioned takaful and retakaful assets, the Operator takes into account its track record of recoveries and financial position of the counterparties while creating provision for impairment. Further, retakaful recoveries are made when corresponding liabilities are settled.

28.2 Liquidity risk

Liquidity risk is the risk that the Operator will encounter difficulty in meeting its financial obligations as they fall due. Liquidity risk arises because of the possibility that the Operator could be required to pay its liabilities earlier than expected or difficulty in raising funds to meet commitments associated with financial liabilities as they fall due. The Operator’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Operator’s reputation. The diversified funding sources and assets of the Operator are managed with liquidity in mind, maintaining a healthy balance of cash and cash equivalents and readily marketable securities.

The table below analyses the Operator’s financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date on an undiscounted cash flow basis.

2019

Carrying amount

Contractual cash flows

Up to 6 months

Over 6 months to 1

year Rupees in thousand

Financial liabilities-OPFTakaful/retakaful payables 41 41 41 - Retirement benefit obligations 60 60 60 - Other creditors and accruals 16,261 16,261 16,261 -

16,362 16,362 16,362 - Financial liabilities-PTFProvision for outstanding claims (including IBNR) 27,422 27,422 27,265 157 Takaful/retakaful payable 51,981 51,981 51,981 - Wakala fee payable 27,023 27,023 27,023 - Other creditors and accruals 2,144 2,144 2,144 -

108,570 108,570 108,413 157 124,932 124,932 124,775 157





2018

Carrying amount

Contractual cash flows

Up to 6 months

Over 6 months to 1

year Rupees in thousand

Financial liabilities-OPFOther creditors and accruals 3,823 3,823 3,823 -

Financial liabilities-PTFProvision for outstanding claims (including IBNR) 708 708 708 - Takaful/retakaful payable 11,178 11,178 11,178 - Wakala fee payable 3,949 3,949 3,949 - Other creditors and accruals 6 6 6 -

15,841 15,841 15,841 - 19,664 19,664 19,664 -

28.3 Market risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as profit rates, foreign exchange rates and market prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk arises mainly where receivables and payables exist due to transactions in foreign currencies. As at reporting date there are no financial instruments denominated in foreign currencies. Therefore, the Operator is not exposed to risk from foreign currency exchange rate fluctuations.

28.3.1 Profit rate risk

Profit rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market profit rates. Majority of the profit rate exposure arises from balances held with reputable banks.


At th

e re

port

ing

date

, the

pro

fit r

ate

profi

le o

f the

ope

rato

r’s s

igni

fican

t pro

fit-b

eari

ng fi

nanc

ial i

nstr

umen

t is:

2019

Profi

t Rat

ePr

ofit b

eari

ngN

on-p

rofit

bea

ring

Tota

lM

atur

ity u

pto

one

year

Mat

urity

aft

er

one

year

Sub

tota

lM

atur

ity u

pto

one

year

Mat

urity

aft

er

one

year

Sub

tota

l

--

----

----

----

----

----

----

----

----

----

----

----

Rup

ees

in th

ousa

nd--

----

----

----

----

----

----

----

----

----

----

----

Fina

ncia

l ass

ets

Ope

rato

r’s

Fund

Ban

k ba

lanc

es3.

7% -

5.6

% 3

9,26

9 -

3

9,26

9 -

-

-

3

9,26

9 W

akal

a fe

e re

ceiv

able

-

-

-

27,

023

-

27,

023

27,

023

Loan

s an

d ot

her

rece

ivab

les

-

-

-

2,2

47

-

2,2

47

2,2

47

39,

269

-

39,

269

29,

270

-

29,

270

68,

539

Part

icip

ants

’ Tak

aful

Fun

dB

ank

bala

nces

3.7%

- 5

.6%

27,

892

- 2

7,89

2 -

-

-

27,

892

Con

trib

utio

n du

e fr

om p

olic

yhol

ders

-

-

-

21,

978

-

21,

978

21,

978

Amou

nt d

ue fr

om o

ther

taka

ful/r

etak

aful

oper

ator

s -

--

24,

006

- 2

4,00

6 2

4,00

6

Ret

akaf

ul re

cove

ries

aga

inst

out

stan

ding

cla

ims

-

-

-

22,

719

-

22,

719

22,

719

Loan

s an

d ot

her

rece

ivab

les

--

- 1

8,01

1 -

18,

011

18,

011

27,

892

-

27,

892

86,

714

-

86,

714

114

,606

Fi

nanc

ial l

iabi

litie

sO

pera

tor’

s Fu

nd

Oth

er c

redi

tors

and

acc

rual

s -

-

-

1

6,26

1 -

1

6,26

1 1

6,26

1

Taka

ful/r

etak

aful

pay

able

s -

-

-

4

1 -

4

1

Ret

irem

ent b

enefi

t obl

igat

ions

-

-

-

60

-

60

-

-

-

1

6,36

2 -

1

6,36

2 1

6,26

1 Pa

rtic

ipan

ts’ T

akaf

ul F

und

Out

stan

ding

cla

ims

incl

udin

g IB

NR

-

-

-

27,

422

-

27,

422

27,

422

Taka

ful/r

etak

aful

pay

able

-

-

-

51,

981

-

51,

981

51,

981

Wak

ala

fee

paya

ble

-

-

-

27,

023

-

27,

023

27,

023

Oth

er c

redi

tors

and

acc

rual

s -

-

-

2

,144

-

2

,144

2

,144

-

-

-

1

08,5

70

-

108

,570

1

08,5

70




2018

Profi

t Rat

ePr

ofit b

eari

ngN

on-p

rofit

bea

ring

Tota

lM

atur

ity u

pto

one

year

Mat

urity

aft

er

one

year

Sub

tota

lM

atur

ity u

pto

one

year

Mat

urity

aft

er

one

year

Sub

tota

l

--

----

----

----

----

----

----

----

----

----

----

----

Rup

ees

in th

ousa

nd--

----

----

----

----

----

----

----

----

----

----

----

Fina

ncia

l ass

ets

Ope

rato

r’s

Fund

Ban

k ba

lanc

es2.

75%

- 5

.25%

45,

114

-

45,

114

-

-

-

45,

114

Wak

ala

fee

rece

ivab

le -

-

-

3

,949

-

3

,949

3

,949

Lo

ans

and

othe

r re

ceiv

able

s -

-

-

7

08

-

708

7

08

45,

114

-

45,

114

4,6

57

-

4,6

57

49,

771

Part

icip

ants

’ Tak

aful

Fun

dB

ank

bala

nces

2.75

% -

5.2

5% 4

,314

-

4,3

14

-

- -

4

,314

C

ontr

ibut

ion

due

from

pol

icyh

olde

rs -

-

-

6

,881

-

6

,881

6

,881

Am

ount

due

from

oth

er ta

kafu

l/ret

akaf

ulop

erat

ors

--

- 4

,663

-

4,6

63

4,6

63

Ret

akaf

ul re

cove

ries

aga

inst

out

stan

ding

cla

ims

-

-

-

518

-

5

18

518

Lo

ans

and

othe

r re

ceiv

able

s-

--

108

-

108

108

4

,314

-

4

,314

1

2,17

0 -

1

2,17

0 1

6,48

4 Fi

nanc

ial l

iabi

litie

sO

pera

tor’

s Fu

nd

Oth

er c

redi

tors

and

acc

rual

s -

-

-

3

,850

-

3

,850

3

,850

-

-

-

3,8

50

-

3,8

50

3,8

50

Part

icip

ants

’ Tak

aful

Fun

dO

utst

andi

ng c

laim

s in

clud

ing

IBN

R -

-

-

7

08

-

708

7

08

Taka

ful/r

etak

aful

pay

able

-

-

-

11,

178

-

11,

178

11,

178

Wak

ala

fee

paya

ble

-

-

-

3,9

49

-

3,9

49

3,9

49

Oth

er c

redi

tors

and

acc

rual

s -

-

-

4

28

-

428

4

28

-

-

-

-

-

-

-

Cash

flow

sen

sitiv

ity a

naly

sis

for

vari

able

rat

e in

stru

men

ts

The

Ope

rato

r is

exp

osed

to c

ash

flow

pro

fit r

ate

risk

in re

spec

t of i

ts b

alan

ces

with

ban

ks. I

n ca

se o

f 100

bas

is p

oint

s (b

p) in

crea

se/d

ecre

ase

in p

rofit

rat

es a

t per

iod

end,

ass

umin

g th

at a

ll ot

her

vari

able

s re

mai

n co

nsta

nt, t

he n

et in

com

e an

d eq

uity

wou

ld h

ave

been

hig

her/

low

er a

ppro

xim

atel

y by

Rs

0.00

7 m

illio

n (2

017:

Nil)

in O

pera

tor’s

fund

. Sim

ilarl

y, in

cas

e of

Par

ticip

ants

’ Ta

kafu

l Fun

d th

e ne

t inc

ome

and

bala

nce

of W

aqf/

PTF

wou

ld h

ave

been

hig

her/

low

er a

ppro

xim

atel

y by

Rs

0.00

1 m

illio

n (2

017:

Nil)

.

28.3

.2Pr

ofit r

ate

risk

Pric

e ri

sk is

the

risk

of c

hang

es in

the

fair

val

ue o

f inv

estm

ents

. The

Ope

rato

r is

not

exp

osed

to p

rice

ris

k si

nce

it ha

s no

inve

stm

ents

.

28.4

Fund

man

agem

ent

The

Ope

rato

r’s o

bjec

tive

whe

n m

anag

ing

capi

tal i

s to

saf

egua

rd th

e O

pera

tor’s

abi

lity

to c

ontin

ue a

s go

ing

conc

ern

so th

at it

can

con

tinue

to p

rovi

de re

turn

s fo

r sh

areh

olde

rs a

nd

bene

fits

for

othe

r st

akeh

olde

rs a

nd to

mai

ntai

n a

stro

ng c

apita

l bas

e to

sup

port

the

sust

aine

d de

velo

pmen

t of i

ts b

usin

esse

s.

The

Ope

rato

r m

anag

es it

s fu

nd s

truc

ture

by

mon

itori

ng re

turn

on

net a

sset

s an

d m

akes

adj

ustm

ents

to it

in th

e lig

ht o

f cha

nges

in e

cono

mic

con

ditio

ns.



29 Capital management

The Operator’s objectives when managing capital are to safeguard the Operator’s ability to continue as a going concern in order to provide return for participants and to maintain an optimal capital structure to reduce the cost of capital.

The Operator’s objective when managing capital are:

(i) to be in compliance with the solvency requirements as prescribed under Takaful Rules, 2012.

(ii) to safeguard the Fund’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

(iii) to provide an adequate return to the participants.

The Operator manages the capital structure in context of economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure.

30 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values. Fair value is determined on the basis of objective evidence at each reporting date.

31 SUBSEQUENT EVENTS

There are no significant events that need to be disclosed for the year ended December 31, 2019.

32 DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue by the Board of Directors of the Operator on March 09, 2020.

33 GENERAL

The window takaful operator was incorporated on May 7th 2018, consequently, the corresponding figures for statement of comprehensive income, cash flow statement and statement of changes of funds having been presented for the period May 7th 2018 to December 31st 2018. Further, corresponding period’s figures have been rearranged where ever considered necessary to facilitate comparison. No significant rearrangements have been made during the year.



FORM OF PROXYSecurity General Insurance Company Limited

I/We, ________________________________________________________________________________of_____________________________FOLIO NO. _______________________________ being a shareholder of the Security General Insurance Company Limited (The Company) do hereby appoint.Mr./Miss/Ms. __________________________________________________________________________of______________________________FOLIO NO.______________________________and or failing him/her _______________________________ of _________________________________who is/are also a shareholder of the said Company, as my/our proxy in my/our absence and to vote for me/us at the Annual General Meeting of the Company to be held on March 30, 2020 (Monday) at 11:30 A.M. at 53-A Lawrance Road, Lahore and at any adjournment thereof in the same manner as I/we myself/ourselves would vote if personally present at such meeting.As witness my/our hands in this day of________________ 2020.Signature _________________________________Address ___________________________________________________________________________CNIC No. _________________________________No. of shares held __________________________Witness:-Name ____________________________________Address ___________________________________________________________________________CNIC No. _________________________________

IMPORTANT:a. This instrument appointing a proxy, duly completed, must be received at the registered

Office of the Company at 53-A Lawrance Road, Lahore not later than 48 hours before the time of holding the Annual General Meeting. For Appointing Proxies.

b. Attested copies of the CNIC or the passport of beneficial owners shall be furnished with the proxy form.

c. The proxy shall produce his original CNIC or original passport at the time of the Meeting.d. In case of corporate entity, the Board’s resolution / power of attorney with specimen

signature shall be furnished along with proxy form to the Company

Revenue Stamp

م ر فا کسی ا مپر ر فا کسی ا پر

۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔ /مہ می

اک/ےک۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔

ذہا در�ی ف

�ب ۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔ ربمن و وفلی د ٹ ٹ ملی ینپمک اوشنرسن رنجل وریٹ سی رنک ی�ت �

ش � ب��ی �

ربمن۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔ و اک/یک۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔وفلی رتحمم/رتحمہم۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔

۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔اک/ےک۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔ می وموجدیگ ز یف

� ایکس ا �ی

ےہ یھب دار صصح اک ینپمک ذموکرہ وج

رپ الوہر روڈ الرسن اقمبم 53۔اے ز 30 :11 ےجب ی �پ زوز اء رپ 30امرچ 2020�ب ا�ی ارے اےنپ /�ہ وک

اتخمر وطبر ارا اانپ/�ہ می وصرت اوتلاء یک یھب یسک ا �ی رکےن رشتک اور ز رکےن ، رقت�ی اامعتسل راے دیہ قح می اعم االجس اسالہن واےل وہےن دقعنم

)رپایسک)

وہا۔ اجری ےس ت

دصت�ی یک وگاوہں ےس دطختس ارے زے/�ہ می ۔۔۔۔۔۔۔۔2020 وک ف ی

اتبر� زوز۔۔۔۔۔۔۔ �ب اج

وگاہ

ام :۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔ �ف

ہتپ :۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔

ربمن :۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔ اکرڈ انشیتخ

دطختس :۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔۔

ونٹ امہ

وہاجےن الزام ووصل لی ےک رکےن رقمر ز ی�ف رپاک�س� لبق الوہر ۴۸ ےٹنھگ روڈ الرسن ےک 53۔اے دشہ، ینپمک لمکم بااقدعہ االت، � ےک رقتری یک ا۔ رپایسک

۔ ی اچ�ہ

یگ۔ وہ ا رکا�ف عمج می ینپمک رمہاہ ےک اہم اتخمر�ف افرم وقنل، رپایسک دصمہق یک �پاوپسرٹ ا �ی اکرڈ انشیتخ وقیم زڈ ف ئ

ورٹا� ی مکپ ےک اورنز ل یفسش �

ف� ب�ی �

ب۔

اگ۔ رکے ا ہمی �پاوپسرٹ الص ا �ی اکرڈ انشیتخ وقیم زڈ ف ئ

ورٹا� ی مکپ الص اانپ ت تو� ےک االجس ج۔ رپایسک

وہاگ۔ ا رکا�ف عمج می ینپمک رمہاہ ےک اہم اتخمر�ف افرم رپایسک دطختس ےک وہڈلر رپایسک ہعم اہم زارداد/اتخمر�فت

� یک ، وبرڈ ٹ ٹ ف ا�ی ٹ اکروپر�ی د۔ وصبرت

د ٹ ٹ ملی ینپمک اوشنرسن رنجل وریٹ دسیٹ ٹ ملی ینپمک اوشنرسن رنجل وریٹ سی

وہں ا رک�ت رقمر

ٹکٹ دی رسی

INVESTORS’ EDUCATIONIn pursuance of SRO 924(1)/2015 dated September 9th, 2015 issued by the Securities and Exchange Commission of Pakistan (SECP), the following informational message has been reproduced to educate investors:

Window Takaful OperationsTAKAFUL

SGI House18-C/E-1, Gulberg III, Lahore.Phone: 042-35775024-29Email: [email protected]: www.sgicl.com | www.takafulsgi.com

GENERAL INSURANCE COMPANY LTD.SECURITY(Window Takaful Operations)

ANNUAL REPORT 2019SECURITY GENERAL INSURANCE COM

PANY LTD.

takaful - sgisgicl.com/wp-content/uploads/2020/06/sgi-report-2019.pdfwindow takaful operations...

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